Annual Report 2017

Annual Report and Sustainability Report

2017 Nederman’s 2017 Annual Report and Sustainability Report

Contents 2017 in summary

Business operations Net sales SEK 3,148.5 m (3,107.3), which organically is an 2017 in summary ...... 2 Key figures...... 2 increase of 0.1 percent. 2018 Annual General Meeting . . . 3 Adjusted operating profit SEK 285.8m (250.3). Adjusted Information on data in this report . 3 Distribution policy...... 3 operating margin was 9.1 percent (8.1). This is Nederman ...... 4 CEO’s comments ...... 6 Operating profit SEK 278.1 m (250.3), which gave an Strategy ...... 8 operating margin of 8.8 percent (8.1). Products and solutions ...... 14 Net profit SEK 186.3 m (172.1). Directors’ report Strong global position ...... 18 Earnings per share SEK 15.93 (14.72). Americas ...... 22 The Board of Directors proposes a dividend of SEK 6.00 EMEA ...... 26 APAC ...... 30 (5.50) per share. Nederman Insight...... 34 Sustainability: Vision and commitment...... 36 Development by quarter Sustainability: Agenda 2030. . . . 38 Q1 Good sales trends. Strong development of service in the US. Good develop- Sustainability: Results...... 40 ment on most markets in EMEA. Continued weak development in China. The Nederman share ...... 42 Q2 Incoming orders increased organically by 13.6 percent. Good order growth in Sustainability: Review of business operations...... 44 the US. A number of major orders booked in EMEA. Good development for the core Multi-year overview ...... 46 business in China. Sustainability: Risk management. . 48 Q3 Good number of incoming orders, improved profitability and a strong and sta- Corporate governance...... 50 ble cash flow. Continued positive development in Canada. Digital sales channels Board of Directors...... 54 are ever more important for EMEA. Strong development in China. Senior executives...... 55 Q4 Net sales increased organically by 4.9 percent. Strong profitability in Ameri- cas. Continued good growth figures in Germany and the UK. Very strong figures Financial reports for incoming orders in China. Acquisition of the Norwegian company NEO Moni- The Group tors, a global pioneer within laser-based solutions for the measuring of gases and Income statement ...... 56 dust in all types of industries. Statement of comprehensive income. 57 Statement of financial position . . 58 Statement of changes in equity . . 59 Cash flow statement ...... 60 Key figures Notes ...... 61 SEK m 2017 2016 2015 Parent Company Net sales 3,148.5 3,107.3 3,198.0 Income statement ...... 91 338.5 298.0 311.0 Statement of comprehensive income. 91 Adjusted EBITDA Balance sheet ...... 92 Adjusted EBITDA margin, % 10.8 9.6 9.7 Statement of changes in equity . . 93 Operating profit 278.1 250.3 242.0 Cash flow statement ...... 94 Operating margin, % 8.8 8.1 7.6 Notes ...... 95 285.8 250.3 263.1 Signatures...... 102 Adjusted operating profit Auditor’s report ...... 103 Adjusted operating margin, % 9.1 8.1 8.2 Profit before tax 260.1 231.7 214.9 Other Net profit 186.3 172.1 152.8 Definitions ...... 108 15.93 14.72 13.07 Articles of Association ...... 109 Earnings per share, SEK Notification of the Annual Return on equity, % 18.1 18.9 19.5 General Meeting ...... 110 Return on operating capital, % 18.0 16.8 19.0 Net debt 585.3 524.3 635.6 Net debt/equity ratio, % 54.4 53.4 75.9 Net debt/Adjusted EBITDA, multiple 1.7 1.8 2.0 Interest cover ratio 11.8 11.8 8.9

2 The Annual General Meeting will take place on 19 April 2018. The Annual General Meeting of Nederman Holding AB (publ) will take place on Thursday, 19 April 2018 at the Radisson Blu Metropol Hotel, Carl Krooks gata 16, 252 25 Helsing- borg. For further information, see page 110.

Information on data in this report Figures in brackets refer, unless otherwise specified, to results in 2016. The currency is Swedish Krona (SEK) throughout. Million Swedish kronor is abbreviated to SEK m and thousand Swedish kronor is abbreviated to SEK t. In the Annual Report, information concerning markets, competition and future growth are Nederman’s own assessments based mainly on material compiled within the Group.

Distribution policy The printed version of the Nederman annual report is distributed to shareholders who request it. The Annual Report is also available in full on the Group's website: www. nedermangroup.com

3 Nederman’s 2017 Annual Report and Sustainability Report

This is Nederman

Nederman supplies products, systems and solutions for industrial air filtration in demanding environments. The Company's customers receive help with everything from the design of major system solutions to installation and service. The end result means that customers have a safe and healthy workplace, that laws and regulations are complied with, that production can be conducted in an efficient manner, and that customers' environmental impact is limited.

LONG AND SUCCESSFUL HISTORY products make a difference throughout the world - every day. For over 70 years, customers have relied on Nederman's ability The interaction between health and safety, compliance with legal to deliver innovative and high quality products and solutions. requirements, production efficiency and reduced environmental Nederman has been a well-known brand for many years. Neder- impact encapsulates Nederman in the concept of eco-efficiency. man has a strong global presence today. Sales are conduct- In terms of economy, it is about streamlined production, improved ed through our own sales companies and distributors in over product quality, minimised environmental charges and reduced 50 countries. The main focus of sales is in Europe and North energy consumption. In terms of ecology, it is about better health America, but Nederman is also active in a number of interesting and safety in the workplace, more efficient use of materials and growth markets. Manufacturing is carried out on five continents. reduced emissions. Net sales in 2017 amounted to around SEK 3.1 billion. The Com- pany’s mission is to contribute with unique know-how and effi- AREAS OF EXPERTISE cient solutions to efficient production, better environment and Extraction/capture. The first step is to select the best method safer workplaces. The vision is to be the leading global expert to capture fumes, dust and particles. All plants have different in solutions for eco-efficient production. Today, Nederman is a requirements. With Nederman’s expertise and broad experi- world leader in industrial air filtration. ence from different industries, the Company can recommend the most effective solution. For welding, for example, the most ECO-EFFICIENCY effective solution is usually capture directly at source or, alter- Nederman’s world-leading solutions are used in industries natively, an extraction arm directed towards the source. Auto- throughout the world. Metal fabrication industries, fibre-based motive workshops require extraction that effectively removes industries, process industries and the automotive industry’s exhaust fumes. Specially designed cowls for the capture of aftermarket are some of the places where the Company's

4 This is Nederman

fumes and particles are often required within heavy industry. sure when handling waste and replacing filters. The solutions Nederman offers all these types of solutions. also include products such as ladders and railings for dust collectors to reduce the risk of accidents during installation and Ducting. When the dust has been captured, it must be trans- maintenance work. ported to the filter. If not done properly, dust can build up in the ducting causing reduced efficiency in the filter system and System components & optimisation. Nederman offers prod- increased wear on the conduits leading to higher maintenance ucts that optimise performance, simplify operation, reduce en- costs and lower productivity. With its own pipes, hoses and ergy consumption and extend maintenance intervals, e.g. fans, other system components, Nederman is able to ensure that the valves, control systems etc. The right components can have a selected parts are suitable for the type of particles to be trans- dramatic impact on the operating and service costs for an air ported. filtration system.

Filtration. With decades of experience and the information RAPID DEVELOPMENT collected about the customer's needs and the type of particles In the last ten years, Nederman has developed from a compa- to be filtered, Nederman can recommend a filter solution that ny with a relatively narrow product range to an environmental is best suited for the task. A filter solution can range from small technology company that can solve fundamental environmental mobile devices to large systems with multiple dust collectors. challenges. The Company is continuing on this path and continu- The choice of filter material is an important component of a ally adding new solutions and areas of expertise. well-functioning system with optimal life. Since 2015, Nederman has had a dedicated competence centre to strengthen knowl- EMPLOYEES edge in this area. At the end of 2017, Nederman had 1,803 employees (1,743). The average number of employees during the year was 1,757 (1,760), Safety components. An important element of a complete air of whom 21 percent were women and 79 percent were men. filtration system is safety components. Safe handling of com- Geographically, the company has the most employees in EMEA bustible dust is a key competence for Nederman. The Compa- region with 56 percent, followed by Americas with 27 percent ny offers products and training for handling combustible dust. and APAC with 17 percent. Waste must also be handled in a safe manner to minimise risks. Nederman’s solutions are designed to minimise expo-

5 Nederman’s 2017 Annual Report and Sustainability Report

Growing number of incoming orders and increased profitability

2017 has been a good year for Nederman. Incoming orders amounted to SEK 3,157.3 m (2,992.3), which corresponds to an organic increase of 4.6 percent following good market development in EMEA and APAC, while incoming orders in Americas was uneven during the year and ended up being just slightly above 2016 figures. Net sales were at 2016 levels, while profitability increased during the year with an adjusted operating margin of 9.1 percent (8.1). Net profit was SEK 186.3m (172.1).

ANOTHER STRONG YEAR FOR EMEA from a figure of negative SEK 9.3m to positive SEK 9.3m in 2017. 2017 was a strong year for EMEA with continued profitability. As Incoming orders and sales also showed positive development a result of a more stable economic climate, we also saw a posi- with an organic growth of 19.4 percent and 6.0 percent respective development in both incoming orders and in net sales. The tively. The adjusted operating margin amounted to 2.3 percent number of incoming orders increased organically by 4.5 percent (-2.5) for the entire year, and the ambition is gradually to raise and net sales increased organically by 4.2 percent. profitability to a level in line with the Group’s financial goals. Mar- kets such as China, India and Australia developed well during the The positive development in net sales and profits was a result of year, while the trend in Southeast Asia was weaker. a project sale that was the best in four years, and a core business with sales of smaller systems and products that continued the In the long term, there is a lot going for Nederman in Asia. The positive trend from previous years. Digitalisation of the operating increasing prosperity in the region leads to a clearer focus on segment's activities with digital sales tools, digital marketing and environmental issues, which for example can be seen in the new the highly appreciated web shop for distributors was also crucial environmental legislation in China. The potential for Nederman's in 2017 to the high levels of efficiency and profitability. system solutions is great, and in recent months, we have seen an increased level of activity within the environmental field. INCREASED PROFITABILITY IN AMERICAS In Americas, the adjusted operating margin increased to 11.1 NEW ORGANISATION FOR INCREASED GROWTH percent (10.7) in spite of a weak market during the year. The de- The Nederman Group is currently undergoing a re-organisa- mand for Nederman’s major systems was low in 2017. Incoming tion of the operation with a goal of increasing both growth orders were at 2016 levels, while net sales decreased organi- and profitability through simple structures and a clear focus. cally by 6,1 percent during the year. We nevertheless managed In concrete terms, this means that Nederman will be organ- to raise our profitability thanks to a systematic and consistent ised with an operational main focus on four trademarks, but effort to lower the organisation’s expenses. The organisation maintaining coordination in the operating segments of Amer- in Americas has also produced clear activity plans for improved icas, EMEA and APAC. With the new organisation, Nederman’s distribution, more efficient sales of smaller systems and higher expertise will make a clear breakthrough on the global market. sales volumes within the after-market. The new organisation will also further strengthen Neder- man’s work with the Group's key customers and expand the MORE POSITIVE SIGNS IN APAC after-market business, which holds considerable opportunities For APAC, 2017 was the year when the trend of reduced profit- for growth. The new organisation will gradually be implement- ability was broken and losses were turned into profits. During ed in 2018 and will be reflected in Nederman’s segment report- the year, the adjusted operating profits increased by SEK 18.6m ing effective 1 January 2019.

6 CEO’s comments

SUSTAINABILITY EVER MORE IMPORTANT FOR THE we created a dedicated key account function whose task was to GROUP'S MAJOR CUSTOMERS develop long-term relations, at the correct level, with our most Nederman has taken decisive steps in recent years within sus- important customers. tainability. Among other things, we have implemented our Code of Conduct within the whole Group and developed the Neder- OUTLOOK man Operations System, which controls how our manufactur- The situation in Europe continues to improve with a positive ing units work and report. In 2015 and 2016, we implement- development in both incoming orders and in sales. In the United ed a comprehensive strategic effort in order to fully integrate States, we also see continued stable sales in the core business, sustainability issues into our business strategy. This work has while uncertainty concerning large projects is expected to re- now transitioned into a more concrete phase that involves the main for some time, even if we have seen a certain amount of development of business plans in various parts of the compa- improvement toward the end of the year. In Asia, several mar- ny. When all the work is completed in 2018/2019, the ambition kets have developed positively; among such developments is an is that Nederman will be a company which, by having integrat- increased activity within the environmental field in China. ed sustainability in its strategy, is the obvious choice for all the Company's stakeholders. Sven Kristensson President and CEO Moreover, sustainability issues are becoming increasingly important for large international companies. Therefore in 2017,

7 Nederman’s 2017 Annual Report and Sustainability Report

Strategy and value creation

Health and safety

Laws and regulations

Production efficiency

8 Strategy

Nederman's mission is to protect people, products and our planet from the harmful effects of industrial processes. In this way Nederman helps to create safe work spaces, efficient production and significant environmental benefits. Clean air is the cornerstone of sustainable production.

Fumes and particles generated during the manufacturing process must be efficiently captured to safeguard product quality, the service life of equipment, compliance with environmental Lower environmental regulations, as well as to maintain safe and healthy workplaces. Manufacturing companies wish to increase profitability by impact making their operations as efficient as possible. They must meet strict environmental requirements and protect their employees from hazardous particles. Nederman can help them on all counts - it's how we create value.

GLOBAL TRENDS DRIVING DEMAND Knowledge about the importance of the internal and external environment is growing globally, resulting in stricter legislation and controls. Strong needs linked to efficient production, environment and health are driving demand for Nederman's products and solutions. Read more about key global drivers in the Sustainability Report on pages 36-41.

FINANCIAL OBJECTIVES Over a business cycle, the annual sales growth should be 8-10 percent and the adjusted operating margin at least 10 percent.

STRATEGIC PRIORITIES

In order2013 to realise2014 the 2015financial2016 objectives,2017 Nederman is working on four priority areas: expansion into new customer and market segments, developed positions in the value chain, the development of new products and solutions, and geographic expansion, see pages 12-13.

Sales growth and margin development

% 2013 2014 2015 2016 2017 30 Total 25 Acquisitions During the past five years, sales growth has amounted to an av- 20 Organic growth erage of 7.0 percent. During the period, the adjusted operating 15 Currency margin varied between 6.4 and 9.1 percent and in 2017 amounted to 10 Adjusted 9.1 percent. The average dividend operating 5 during the period was 46 percent margin of net profit. 0

9 Nederman’s 2017 Annual Report and Sustainability Report

This is how Nederman creates value for its customers

HEALTH AND SAFETY

It is profitable for employers to provide a clean and safe working environment. Several studies carried out in recent decades show that industrial workers who work in a clean and safe environment, without dangerous fumes or particles, are both more efficient and have lower absence due to illness. In the competition for highly qualified workers, it is becoming increasingly important to provide clean, safe and attractive workplaces in order to attract the best people.

In the welding industry, inhalation of welding fumes is one of the most serious risks. Welding fumes contain substances that can cause serious illnesses in the long term. Therefore, it is important to avoid welding fumes and Nederman offers a wide range of solutions for a safe working environment within the welding industry.

COMPLIANCE WITH LAWS AND REGULATIONS

Globally, each year 5.5 million people die prematurely of diseases related to air pollution. More than half of these deaths are in India and China. This means that air pollution is the second biggest cause of premature death worldwide. Only smok- ing kills more people.*

A lot is being done to counter air pollution, and countries around the world are tightening their regulations and reducing emission threshold limits. Since industrial production is a major contributor to air pollution, many industries are facing new challenges. Nederman’s efficient air filtration systems enable compliance with regulations and fines to be avoided in a variety of different industries.

* WHO report "Global impact of diseases," published in 2016.

10 Strategy

PRODUCTION EFFICIENCY

Just as dust and smoke are harmful to humans, they can also shorten the life of machines and other production equipment. Dusty production environments can also adversely affect product quality, leading to product rejection and delayed deliveries. Generally speaking, air pollution leads to recurring problems and lower profits. Clean air is thus in many ways pure profit.

Nederman also offers energy-efficient solutions that can contribute to significant energy savings and solutions for the recycling of valuable materials, e.g. cutting fluids, wood and metal shavings. In this way Nederman contributes to sustainability and profitable production.

LOWER ENVIRONMENTAL IMPACT

Nederman contributes to a better environment through its solutions and expertise that minimise air pollution and help customers create a more sustainable production. Nederman also helps customers to recycle valuable waste such as metals and wood. In this way, Nederman helps to optimise the use of limited resources.

Nederman also works actively to minimise the environmental impact of its own production. Already during the development of new products, solutions are designed for long life with clever use of materials and efficient operation. Products should be manufactured with the lowest possible environmental impact and the aim is to reduce energy consumption in relation to sales by 20 percent by 2020 (compared to 2013). As for the waste generated in production, the target is that 95 percent will go to recovery by 2020.

11 Nederman’s 2017 Annual Report and Sustainability Report

Strategic priorities

EXPANSION TO NEW CUSTOMER AND MARKET SEGMENTS

Since 2003 Nederman’s sales have grown from SEK 735m to SEK 3,149m in 2017. This development has been achieved by means, among other things, of a major expansion of its customer offering through acquisitions. Through acquisition, Nederman has significantly broadened its offering to include complex industrial processes, filter technology, management of oil mist, metal chips, ash and lime. Nederman is working continuously to identify interesting areas of expansion.

In 2017, this expansion continued with the acquisition of the Norwegian NEO Monitors, a global pioneer in laser-based solutions for measuring gases and particulates in all kinds of industries. The company has taken a leading position in all generations of laser-based measurement technology. Read more about NEO Monitors on page 34.

DEVELOPED POSITIONS IN THE VALUE CHAIN

With a strategic focus on streamlining sales and distribution, Nederman has begun a digital transformation that involves a change in the way we communicate and do business. By focusing on digital channels, Nederman will increase demand and create qualified sales opportunities.

Nederman also sees considerable opportunities in providing more value to the company's key customers all over the world through an increased understanding for the customer’s processes. Therefore, in order to become an even more attractive partner that can handle customers with a worldwide operation, the Global Strategic Accounts function was created in 2017.

12 Strategy

DEVELOPMENT OF NEW PRODUCTS AND SOLUTIONS

Nederman is continually developing its offering to meet the highest standards of performance and service life as well as lower energy consumption and maintenance costs. In 2017, four new products, among them the FX2 extraction arms suitable for laboratories and the electronics industry. A complement to the range for the extraction of welding fumes was launched, FE 24/7, a mobile extraction solution for round-the-clock operations. New explosion isolation valves, CARZ-N were launched, which are designed, tested and certified in accordance with EN16447: 2014, in order to allow for use with all St1-particulate types, including metal particulates.

Nederman also introduced new solutions for modern vehicle workshops and other industries, e.g., currently cable and hose reels are available in a neutral grey design and they meet the requirements of plants that want to highlight their own trademark.

GEOGRAPHIC EXPANSION

Nederman has gradually expanded its business operations to an increasing number of countries around the world. Today, the Group has particularly strong positions in North America and Europe. The aim is to establish a successful operation in more countries.

In South America, Nederman has built a strong organisation in Brazil and is currently working to do the same in Mexico. Nederman is also present in selected markets in Asia, which the Group believes is an interesting market in the long-term.

13 Nederman’s 2017 Annual Report and Sustainability Report

Products and solutions

We are specialists in advanced air purification in demanding industrial environments. Our solutions help to reduce environmental impact, create good working environments and increase production efficiency.

14 Products and solutions

Nederman’s offer includes individual products, engineering design, installation, commissioning and service. Many of our solutions have been pioneering in their ability to streamline production, reduce environmental impact and improve the working environment.

SALES MODEL Nederman’s sales model is divided into three segments in order to deliver solutions to customers’ challenges as effectively as possible.

Product sales Nederman has a broad range of standard products that solve common problems relating to smoke, gas, dust, material recycling, working environment and efficient production. Product sales are primarily via distributors and resellers.

Solutions Solutions consist either of individual products in the Nederman range which are assembled to build smaller and medium-sized systems, or large system solutions with a high element of special customisation. The task of both variants is to solve more complex tasks. Sales are through Nederman's own sales organisation.

Service and aftermarket By offering qualified service with good availability, Nederman helps to ensure continuous operation without expensive in- terruptions to customers' production. In addition to technical service this area also includes service contracts, spare parts and consumables.

Sales per segment, SEK m

Products Solutions Service 1500

1200

900

600

300

0 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

15 Nederman’s 2017 Annual Report and Sustainability Report

Priority market segments

METAL FABRICATION

Air pollution, such as welding fumes and oil mist, is a common problem in metal fabrication. The particles that are released can endanger the health of employees, contaminate surfaces and damage electronic components used in production. There are also strong economic incentives to recycle waste products such as cutting fluids, abrasives and metal shavings. Stricter requirements and standards for the working environment are also driving demand in this area.

Nederman's products solve challenges within metal fabrication by capturing welding fumes, oil mist and other particles at source and by separating cutting fluids, abrasives and metal shavings for recycling. We have a complete range with everything from mobile filters to total solutions for entire production lines and plants. There are also solutions for welding robots and machines in automated production processes.

FIBRE-BASED INDUSTRIES

The handling of materials that generate dust is a major problem in many industries. The wood processing and composite processing industries are good examples, alongside the pharma- ceutical and food industries where there are strict demands for hygiene and safety. Process dust that forms in the handling of materials such as wood and composites can cause health problems when inhaled, while they may also damage product quality. Some types of dust also cause fire and explosion risks.

Nederman's products and solutions are in many cases necessary for safe and efficient production. Our offering includes solutions that not only enable a safe working and production environment, but also dispose of waste products for various forms of recycling. In larger plants, Nederman’s equipment is often fully integrated in the customer’s process to contribute to greater energy efficiency. In smaller plants and processing operations there are tool-specific applications for capturing particles at source.

16 Products and solutions

PROCESS INDUSTRIES AND ENERGY PRODUCTION

There is an ongoing global expansion of processing plants and incineration plants to meet growing demand for metals and energy. These production plants produce hot gases that contain harmful particles.

Nederman has developed a complete system for foundries, smelters and other types of incineration plant. The Group also supplies solutions for recycling of resources in waste management plants. Nederman’s solutions mainly comprise filter systems that meet high demands for performance and also minimize energy consumption and maintenance costs. In many instances the Group takes complete responsibility for solutions, which means design, installation and commissioning as well as continual servicing.

THE AUTOMOTIVE INDUSTRY’S AFTERMARKET

Nederman supplies solutions that safeguard a good working environment in vehicle repair shops, MOT centres and emergency service stations. The company is a world leader in systems for handling exhaust fumes and also supplies a wide range of solutions for large and small vehicle repair shops.

Solutions safeguard a clean and safe working environment and make repair shops more efficient with better ergonomic conditions. The systems take care of exhaust fumes directly from the exhaust pipe. There are solutions for easier handling of hoses and cables. Other products take care of particles and smoke that are produced through grinding, welding and painting.

17 Nederman’s 2017 Annual Report and Sustainability Report

Strong global position

Global market € 5 billion Sales in more than 50 countries Manufacturing on five continents

18 Directors’ report | Strong global position

Nederman has a strong global presence. Sales are conducted through our own sales companies and distributors in over 50 countries. Most sales take place in Europe and North America, although Nederman is also active on a number of growth markets. Production is carried out in 11 countries on five continents.

The Group is organised in three operating segments: Americas (North and South America), EMEA (Europe, Middle East, Africa) and APAC (Asia and Oceania). Each operating segment is responsible for both sales and product supply in its area.

Sales per operating segment, SEK m

AMERICAS EMEA APAC 1500

1000

500

0 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

Adjusted operating profit per operating segment, SEK m

AMERICAS EMEA APAC

200

150

100

0 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

19 Nederman’s 2017 Annual Report and Sustainability Report

MARKET AND COMPETITION

The global market for air filtration is estimated to be EUR 5 billion and is growing in line with increasing focus on the environment and health and safety issues.

The key concentration of Nederman’s sales is in Europe and North America, but the Group is developing positions in Eastern Europe, Asia, the Pacific region and Brazil.

Competitors generally have a narrower product range and more limited geographic coverage. Within specific application and product areas, competition comes from regional or local businesses.

SALES ORGANISATION

The group has its own sales companies in 25 countries, and distributors in more than 30 other countries. The company aims to maintain a good balance between direct sales and sales via distributors in order to reach customers with varying demands as effectively as possible.

A strong local presence is of great importance to Nederman to meet changes in market requirements and deliver comprehensive solutions. Sales through distributors meanwhile give Nederman a high market coverage for individual products and smaller systems.

During recent years the company’s own sales organisation has been developed to strengthen presence on new and existing markets. A regional structure has been established for sales and technical support on developing markets and within specific business segments.

20 Directors’ report | Strong global position

SERVICE

By offering advanced service with high availability, Nederman helps its customers to secure continuous, optimised production. This is especially important as the Group increasingly works with total solutions for large installations, solutions that are often critical to production for customers.

The need for services is also increasing in pace with the fact that the installed base of equipment from Nederman is growing in all markets. To serve this base, Nederman has an established service organization in many countries. The service organisation is currently being developed to meet the needs of the growing markets in Asia and Eastern Europe, among others.

PRODUCTION

At the end of the year, the Group had production and assembly units in eleven countries. There are six units in Europe: Sweden, Denmark, Norway, the UK, Poland and Germany. In Asia, there are plants in China and Thailand. There are also units in Australia, USA and Brazil.

All production is carried out in accordance with the Nederman Operations System with common principles for customer focus, result driven leadership, committed employees, continuous improvement and visualisation. The aim of the Nederman Operations System is to have more satisfied customers, dedicated employees, reduced environmental impact, safe and healthy workplaces, the right product quality and cost-effective operations.

Nederman has global certification for quality and the environment, in which all production units in Nederman and Nederman Holding AB are included. In May 2016, Nederman, as one of the first companies in Sweden to do so, upgraded its global certification to the new revisions of the ISO9001:2015 and ISO14001:2015 standards.

21 Nederman’s 2017 Annual Report and Sustainability Report

Americas Continued weak demand for large systems. Systematic effort to improve profitability.

The operating segment Americas experienced a rather mixed development in 2017. A weak first quarter was followed by two quarters with a good level of incoming orders. Total incoming orders for the year was at the 2016 level and amounted to SEK 1,198.4m (1,194.5), corresponding to an organic growth of 0.3 percent. Sales decreased organically by 6.1 percent to SEK 1,228.3m (1,307.1). In spite of the decrease in sales, profitability rose owning to a systematic effort to reduce costs. For the entire year, the adjusted operating profit amounted to SEK 136.9m (140.4), corresponding to an adjusted operating margin of 11.1 percent (10.7).

CONTINUED UNCERTAINTY DURING 2017 DEVELOPMENT PER COUNTRY 2017 was characterised by a continued uncertainty with regard In 2017, the US market was characterised by prolonged deci- to a possible tax reform in the United States, renegotiations sion-making processes for large projects. For Nederman this of the NAFTA trade agreement and other political issues. The meant that the demand for large system solutions fell significant- political uncertainty resulted in a challenging market fraught ly. Looking at the full year, incoming orders declined by about 50 with uncertainty and lengthy decision-making processes, which percent for this part of the customer offering. The housing market led to a lower propensity to invest, and thereby a low demand continues to perform well in the USA, which had a positive effect for Nederman’s major system solutions. At the end of 2017, the on Nederman’s sales to the wood products industry. Nederman’s new tax reform in the United States was approved, which meant core business with products and services had a solid performance that the uncertainly previously experienced was somewhat re- during the year. Canada saw a positive development during 2017. moved. It is too early to say exactly what effect this will have on This positive development is driven, among other factors, by an the American market. agreement with a national distributor in the welding segment, which has resulted in a positive effect on core business. Brazil In the absence of a strong demand for the company’s larger sys- has been characterised for a long time by low economic activity. tem solutions, during 2017 Nederman Americas has focused on Despite this, Nederman has had a relatively good development the continued development of its core business with product in the country and after a weaker third quarter incoming orders sales and sales of smaller systems and efficiency improvements. increased again in the last quarter of the year. Mexico accounts for a limited part of Nederman’s sales in Americas. The focus is currently on developing the core business in the country, but the political situation in the region makes it difficult to assess how the Overview 2014-2017 development will be in 2018.

Sales, SEK m Adjusted operating profit, SEK m Adjusted operating margin, %

1400 200 15

1200 150 1000 10 800 100 600 5 400 50 200

0 0 0 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

See Note 3 for further information.

22 Directors’ Report | Americas

FOCUS ON OUR CUSTOMERS

Nederman’s filter solutions provide efficient production environments and safe workplaces Due to an increasing demand for a proprietary textile product, Nederman was contracted to supply a comprehensive upgrade to a customer’s existing manufacturing plant located in the Southeast USA. The project involved the relocation of textile machinery and supply of new associated air purification and conditioning equipment for the process. The process requires removing dust and fiber as well as heat and supply- ing air at high humidity in order to generate efficient production and a good working environment. Thanks to an installation that combines Nederman’s modern APF (Automatic Panel Filter) for particulate and fiber control and Pneumafil brand air washers for cooling and humidity control, a sustainable system is created that meets the high demands of production efficiency and good work environment. The installation will be carried out in multiple phases and be fully completed in 2018.

FOCUS ON OUR CUSTOMERS

Nederman equipment protects New York firemen The New York Fire Department is one of the world’s largest. The fire department was founded in 1865 and currently has 11,000 firemen, 4,500 EMT’s and paramedics, and 2,000 civil servants. There are more than 350 fire stations in New York and even more EMS stations. The New York Fire Department uses Nederman’s MagnaRail system in order to process vehicle exhaust during maintenance work in the garage.

Since the fire engines run on diesel and, as a rule, they are started inside the fire stations upon being dispatched, Nederman equipment has also been installed to protect the firemen from continually being exposed to harmful emissions from the diesel engines. Over the past three years, the New York Fire Department has upgraded all of its Nederman systems in order to increase efficiency and to lower energy consumption.

23 Nederman’s 2017 Annual Report and Sustainability Report

FOCUS ON OUR COMPANY

The story of Jessica Astoria and Katie Foote Allowing the company's employees to develop and grow with ever more responsible assignments is an integrated part of Nederman’s goals of creating a workplace that attracts talent and which gets them to stay with the company. In order to succeed in this ambition, Nederman works on long- term staff development and succession planning. One example of how this works in practice can be found at one of Nederman's facilities in the United States, where Jessica Astoria and Katie Foote have continually developed and been promoted to increasingly responsible positions. Since she came to the company in 2005 as a process engineer, Jessica Astoria has gained experience from different positions in the company. Her career encompasses senior positions within technical sales, project management and production, and in 2017, Jessica was promoted to the position of Vice President, responsible for sales, marketing and product development. Katie Foote, since she came to the company in 2011, has had a similar career development with a number of positions within the company. Katie also began as a process engineer and has subsequently held a number of different roles and currently serves as Operations Manager. Katie Foote and Jessica Astoria

FOCUS ON OUR PLANET

Efficiency measures in Charlotte decrease energy intensity The majority of CO2 emissions from Nederman's own operations come from energy consumption in production, as well as from emissions associated with freight transport. In 2017, Nederman implemented comprehensive efficiency measures at the production unit in Charlotte. One effect of this has led to a more than 30 percent reduction in energy intensity, which corresponds to a reduced quantity of CO2 by approximately 600 tonnes/year. In general, Nederman conducts ongoing projects around energy efficiency in the manufacturing units - from upgrading to LED lighting to major efficiency projects en- compassing the entire manufacturing and logistics operations.

Another way of reducing the amount of CO2 emissions from production is to increase the proportion of renewable energy. The proportion of renewable energy in Nederman’s production has increased from 15 percent in 2016 to 21.2 percent in 2017.

24 Directors’ Report | Americas

DRIVING FORCES Over the course of the year, the service organisation in the United Due to the continued political uncertainty, industrial produc- States has taken on a clearer commercial focus and the new sales tion and industrial investments in 2017 remained at low levels. In team for aftermarket has been assigned the task of generating spite of this, there are a number of driving forces acting toward a increased sales in service, spare parts and various kinds of prod- positive development for Nederman Americas. Providing a good uct updates, but also by identifying interesting projects on the working environment in different types of process industries is significant replacement market. Also Brazil offers good oppor- increasingly important in order to be able to recruit personnel and tunities for increased sales of services, and in 2017, Nederman’s to comply with existing laws and regulations. Air emissions are service organisation expanded to new geographic areas in the regulated by law in most countries in the region. Another trend vast country. Nederman Americas is represented by its own sales that is growing ever stronger is the interest in energy recovery. companies which handle product sales and service in the USA, Nederman markets products and solutions that make production Canada, Mexico and Brazil. In the other countries in the region lo- environments cleaner and operations more stable with minimal cal distributors handle these activities. In addition to the national disruption to the customer’s business. The economic arguments sales companies, Nederman Americas has a regional organisation for Nederman’s solutions are thus gaining extra force. In Ameri- with responsibility for project sales of customer-adapted sys- cas there is growth in the auto, construction, woodworking and tems, which requires high competence and significant resources. textile industries, which means increased demand for the Group’s Mexico has a potential that has not yet been fully utilised and the products and solutions. The fact that American companies, in the management of Nederman Americas continued in 2017 the long- wake of lower energy prices and political intentions, are moving term efforts to develop this market where growth is expected to back production previously outsourced to Asia, has the potential be good for a long time to come. Nederman had a total average to increase industrial activity. number of employees of 482 (486) in Americas in 2017.

ORGANISATION OPERATIONS In 2017, the organisation in Americas continued its efforts in One important explanation for the success of Nederman Ameri- strengthening competitiveness in product sales and thereby cas in recent years is the local manufacturing capacity. By being to reduce dependency on sales of large projects. One example able to manufacture large parts of the product range close to its worth mentioning is that Nederman’s distributor network ex- most important customers and in the dominant currency, signif- panded considerable during the year. In parallel with developing icant benefits are achieved in terms of lead times and reduced sales channels and other market activities, the company has also currency risks. Major efficiency measures were implemented in worked actively on improving margins. 2017 for manufacturing and logistics, which together with improvements to administration led to considerable cost savings.

THREE QUESTIONS FOR TOMAS HAGSTRÖM, SVP DIVISION AMERICAS

How do you view the development in 2017? “Development in 2017 was similar to that of 2016 with a weak demand for larger systems, but with a good development for the core business with product sales and sales of smaller systems. The reason for the low amount of system sales is the uncertainty concerning political decisions that prevailed during the year.”

What were the highlights of the year? “I don’t want to highlight any particular incident; rather, I would like to talk about our staff. There are very many people who have done a fantastic job in 2017, not least when it comes to working on lowering costs and increasing margins.”

How do you see the future for Americas? “I hope that the decision concerning the new tax reform that was made in December 2017 will result in a strengthened investment climate in the United States, even if it is too early to draw any long-term conclusions. The investment climate is not something that we can affect to any great extent. On the other hand, we have clear activity plans that systematically aim to improve our distribution, render our sales processes more efficient for smaller systems, and the continued commercialisation of our aftermarket services. All in all, I continue to be optimistic for 2018.”

25 Nederman’s 2017 Annual Report and Sustainability Report

EMEA Continued improvements to profitability and increased demand for Nederman's large system solutions.

EMEA operating segment experienced a positive development in 2017. Incoming orders increased organically by 4.5 percent as a result of better project sales and a continued good development of the core business with sales of products and smaller systems. Profitability was boosted for the fifth year in a row with an adjusted operating margin of 13.6 percent (11.8). Sales totalled SEK 1,517.5 m (1,420.6), equivalent to an organic growth of 4.2 percent.

PROFITABLE GROWTH IN 2017 GOOD DEVELOPMENT ON SEVERAL MARKETS The business climate improved during the year with an in- Both Germany and Britain, two of EMEA’s most important mar- creased demand in several geographical areas. Project sales kets, had a positive development in 2017. In Germany, incoming increased significantly and in 2017 were the highest they had orders increased organically by 6.2 percent, while the correspond- been in four years. ing figures for Britain were 18.5 percent. Even Eastern Europe generally showed good development during the year, with the A large portion of project sales went to various types of recy- exception of Russia, where incoming orders decreased in compar- cling companies, among them companies that recycle precious ison with 2016. metals, recycling of electronic refuse and refuse to energy production. Other industries in the market for the Group’s system In general, the countries of Southern Europe posted a weaker solutions were the wind turbine and the aircraft industries. performance in 2017. Among the Nordic countries, Norway posted a strong performance during the year, while perfor- The aftermarket also experienced positive development in 2017 mance in Sweden and Denmark was somewhat weaker than with an increased element of upgrades to existing equipment. it was in 2016. The Netherlands saw a pronounced improve- The digital sales channels continued to grow well during the ment in 2017 after a long period of weak demand. Distributor year, and more and more distributors have been introduced to markets (the markets in which the operating segment does not Nederman's highly appreciated Partner Web Shop. have its own sales company) continued their positive development from 2016.

Overview 2014-2017

Sales, SEK m Adjusted operating profit, SEK m Adjusted operating margin, %

1500 200 15

150 1000 10

100

500 5 50

0 0 0 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

See Note 3 for further information.

26 Directors’ Report | EMEA

FOCUS ON OUR CUSTOMERS

Nederman contributes to a more efficient and safer aircraft industry For quite some time, Nederman has been a supplier to this industry with its unique solutions for air purification in industrial environments.

One challenge facing the aircraft industry is in handling particulates and chips that occur during grinding and polishing aeroplane parts, such as wings. Nederman's equipment for extraction and filtering creates a production environment that can take care of dust and chips from materials such as carbon fibre, aluminium and titanium in a safe and effective manner.

This way, Nederman helps its customers comply with regulations, increase efficiency, as well as improve the quality and extend the life of the manufacturing equipment.

FOCUS ON OUR CUSTOMERS

Enormous benefits with metal recycling During 2017, Nederman received a substantial order for a facility recycling metal from electronic refuse, i.e., mobile tele- phones and similar items. Recycling metal instead of mining and manufacturing new metals has dramatically positive environmental effects. To name just a few examples: recycling metals generally consumes 75 percent less energy, and for a metal like aluminium, the energy consumption is some 95 percent lower; emissions into the air are reduced by 86 percent and the consumption of water falls by 40 percent.

At the same time, only 12-18 percent of the world’s electronic refuse is estimated to be recycled. In other words, there is great potential to manage the earth’s resources better, and Nederman strives to be instrumental in this development.

27 Nederman’s 2017 Annual Report and Sustainability Report

FOCUS ON OUR COMPANY

New digital solutions improve dealer relationships A substantial part of Nederman’s business is conducted via dealers and establishing mutually profitable relationships with dealers around the world is very important. Over the past years, Nederman has worked hard to become a company that it is easy to do business with. One part of this effort is the new digital tools with an updated web, a partner web shop and digital order handling.

The Belgian company Welda has a 20 years long relationship with Nederman. Operational Sales Manager Alain Van Kerre- broeck comments on today’s Nederman: “We are happy with our relationship with Nederman. It is good company to work with and easy to talk to. They understand the business and the market. The new digital services have made the information much easier to find, and the web shop is easy to handle. The only drawback for us with this new approach is that we now actually have to do some of the order handling that Nederman used to do in the past, but all in all, we are very happy with our relationship with Nederman.”

FOCUS ON OUR PLANET

Reduced amount of chemicals in the wash water in Poland In general, Nederman consumes rather small quantities of chemicals. The chemicals consumed are mainly used in connection with the paining of metal parts. Before the parts can be painted, they must be cleaned. For most metal parts, this is done in an automatic process in which the refuse is gathered and sent off for recycling. For larger parts, the washing process is manual and so far nothing has been done with the refuse.

Therefore, Nederman has now upgraded the factory in Poland with a cleaning facility for wash water coming from the paint works. This considerably reduces the amount of chemicals, particularly phosphates, in the wash water. All the wash water now passes through this facility, which in addition to the environmental benefits it offers also reduces costs for waste management and offers a more flexible operation in the paint works.

28 Directors’ Report | EMEA

DRIVING FORCES a series of training programmes were carried out in areas such Requirements for safe work environments and reduced emis- as value-based sales, project management and leadership. Pre- sions from industries and a growing realisation of the real costs venting dust explosions is one of Nederman's areas of expertise, of environmental damage are factors that have a long-term and in 2017 certification of internal experts continued in order positive effect on Nederman's operations in EMEA. In new and to further strengthen Nederman's ability to manage critical future EU countries that need to adapt to EU requirements, safety issues in a professional manner. Today, Nederman is rep- tougher legislation also plays an important role. As globalisation resented by its own sales organisations in most Western Euro- intensifies competition, the economic arguments for Neder- pean countries as well as in several countries in Eastern Europe. man's products and systems are becoming clear. By investing in In the countries where the Group has no representation, sales Nederman’s products, companies can secure higher production are carried out through distributors. Nederman had an average efficiency and a better working environment. total number of employees of 977 (970) in EMEA during 2017.

ORGANISATION OPERATIONS In 2017, Nederman EMEA continued ongoing efforts to stream- In 2017, Nederman EMEA continued the recent years’ constant line operations, enhance long-term competitiveness and in- improvements to the operation at the manufacturing divi- crease the organisation's focus on delivering high customer sions. In Poland, the substantial streamlining efforts that began value. These efforts include a digitalisation of the sales and in 2016 were completed. The Nederman Operations System marketing processes with a focus on value-based sales. Among production control system was further developed during the other things, digitalisation involves a Partner Web Shop for year, which among other things led to more efficient flow in the distributors and other digital sales tools. Partner Web Shop has factories. Sustainability work has been strengthened through been received very positively by the distributors and the num- a transition to renewable energy at the plant in Helsingborg ber of electronic orders in 2017 has grown at the same time as from 1 January 2017 and by continuing to reduce waste vol- the number of products available at the web shop has grown. umes in production. Nederman EMEA has manufacturing in the The current digitalisation has thus far resulted in increased effi- following locations in Europe: Assens, Denmark (manufactur- ciency and improved profitability. Simultaneously, it is becoming ing); Marki, Poland (manufacturing); Leeds, UK (manufactur- easier and easier to do business with Nederman as information ing); Helsingborg, Sweden (assembly and distribution); Kinna, about the company's products is always available. An order is Sweden (manufacturing) ; Töredal, Sweden (manufacturing); just a push of a button away. The aim is also to position Neder- Friesenheim, Germany (manufacturing and assembly); and man as a leading expert and preferred partner. During the year, Skedsmokorset, Norway (manufacturing).

THREE QUESTIONS TO HANS DAHLÉN, SVP DIVISION EMEA

How do you view the development in 2017? “2017 was a good year for us with an organic growth of incoming orders after a pronounced increase in our solution sales and a continued strong profitability. We have now improved our profitability for five years in a row, and in 2017 we had a higher profitability in each particular quarter compared to the corresponding quarters in 2016.”

What were the highlights of the year? “I would emphasise the improved business situation with higher demand for our system solutions, which together with a continued good development of our core business meant that we experienced a good level of growth in both incoming orders and sales. I should also mention the continued digitalisation of our operation. Already, our Partner Web Shop is playing a great role in our operation and its importance and that of other digital investments will only increase.”

How do you see the future for EMEA? “We go into 2018 with an even more strengthened position and I feel a continued and growing optimism. We have built a solid platform and at the same time we have identified a number of areas where we can further improve. In 2017, we showed what we can do, and we shall continue that work in 2018. “

29 Nederman’s 2017 Annual Report and Sustainability Report

APAC Considerable improvement in profitability. Positive trends in China, India and Australia.

APAC operating segment posted a positive performance in 2017 with incoming orders that amounted to SEK 428.3m (358.4), equivalent to an organic growth of 19.4 percent. Performance was positive in China, India and Australia, while demand was generally lower in Southeast Asia. Sales totalled SEK 402.7 m (379.6), equivalent to an organic growth of 6.0 percent. A strong close to the year meant that profits for all of 2017 rose by SEK 18.6m to SEK 9.3m, compared to a negative adjusted operating profit figure of SEK -9.3m for 2016. The adjusted operating margin increased to 2.3 percent (-2.5).

IMPROVED PROFITABILITY IN FOCUS DEVELOPMENT PER COUNTRY The overall goal for APAC in 2017 was to generate profitability In China, demand was weak during the first quarter of the year, in the business operation. APAC is a region with good poten- but during the three following quarters, performance on the tial for large installations in connection with the construction Chinese market was markedly stronger, not least during the of a modern manufacturing structure in the region. During the final quarter of the year when incoming orders grew organical- year, Nederman has chosen to focus on those areas in which ly by 70 percent. The core business performed well during the the Group has a high level of expertise and thanks to its good three final quarters of the year, and during the fourth quarter, quality and high level of technology has won a number of pro- even more major orders were placed. As well, India performed curements in competition with local manufacturers without well in 2017 with the exception of the third quarter as the mar- compromising profitability. ket was weighed down by the new indirect tax (GST). For the entire year, the organic order growth amounted to 28 percent. Nederman always acts with the long term in mind when the In Australia, financial confidence continued to increase and the Group establishes itself on new markets, but at the same time it organic number of incoming orders grew by 27 percent for the has strict requirements on profitability for all of its operations. full year. The core business had a weak performance in South- The increased profitability in APAC during 2017 is an initial step east Asia, while a number of larger orders were placed. on the way toward an operating margin in line with the Group's financial goals.

Overview 2014-2017

Sales, SEK m Adjusted operating profit, SEK m Adjusted operating margin, %

400 10 2 8 6 1 300 4 2 0 200 0 -2 -1 -4 100 -6 -2 -8 0 -10 -3 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017

See Note 3 for further information.

30 Directors’ Report | APAC

FOCUS ON OUR CUSTOMERS

One customer, two continents - no problem For some time now, Nederman has supplied comprehensive solutions to the Japanese company, Aisin Takaoka. When Aisin Takaoka decided to set up a new foundry in Mexico, the choice was made once more to have Nederman equip the facility with world-class industrial air purification. The order from the Japanese company further confirms Nederman’s leading position and competitiveness with regard to industrial air purification on any continent. Nederman’s strong presence both in Asia and in North America makes it possible to coordinate project in an efficient manner across two continents.

The system for the facility in Mexico will be designed and manufactured at Nederman’s plant in Suzhou, China, and the installation will be led by the technical team in Suzhou in close col- laboration with Nederman’s organisations in Mexico and the United States. Seldom has Nederman's global strength been demonstrated so clearly.

FOCUS ON OUR CUSTOMERS

Nederman provides Nanjing Yunhai cleaner air and more stable production Founded in 1993, the Nanjing Yunhai Group manufactures various types of stainless metals, among them aluminium and magnesium alloys, as well as various types of extruded and die-cast products. The company's products are used in the automotive and electronics industries.

Nederman in China sold its first comprehensive solution, including an FS filter, to Nanjing Yunhai in 2015, which re- placed an old system from a local manufacturer. The new filter solution contains considerable more efficient air purification and a more stable production environment. Neder- man's high level of quality is very much appreciated by the customer, and ever since its first installation in 2015, Neder- man has installed twelve systems at six of Nanjing Yunhai's plants around China.

31 Nederman’s 2017 Annual Report and Sustainability Report

FOCUS ON OUR COMPANY

Successful organisational development in China and India Nederman performed strongly in China in 2017. One important reason to the positive trend is the structured work that was undertaken in order to make the organisation more efficient. By appointing new senior executives that speak Chinese, a better means of following up on the operation was established; at the same time, the image of the organisation's strengths and weaknesses became clearer. Much of the work in strengthening the organisation has focused on clarifying roles and responsibilities. At the same time, inspiration for how Neder- man works at its best has been gathered from other parts of the organisation.

A similar undertaking was also done in India, where Neder- man recruited employees who can in a powerful manner contribute to the company's development. Just as in China, this conscientious effort produced good results during the year.

FOCUS ON OUR PLANET

Nederman benefits from its own expertise at the Suzhou plant Environmental legislation in China is becoming more and more strict, and factories, including some of Nederman’s subcontractors, are inspected by the authorities more frequently than before. If major faults or defects are discovered, there is a considerable risk that production will be stopped and the plant heftily fined. One area of focus during inspection is air emissions from paint works, where the regulations have become stricter. Nederman's own paint facility in Suzhou is subject to the harsher regulations. In order to ensure that the emissions in Suzhou meet national and local standards, Nederman conducted a comprehensive maintenance undertaking of the filter solution in 2017. A job where Nederman’s own expertise in industrial air purification was put to use internally.

The work at the plant in Suzhou has also created opportunities for Nederman to apply its experience in developing the range offered to companies in the same situation.

32 Directors’ Report | APAC

DRIVING FORCES Partner Web Shop for the company's distributors. The level of Much of the production infrastructure in the region lacks envi- expertise has been raised on the Indian market by increasing the ronmental technology solutions or is using poor equipment. In requirements on new recruits. other words, there is a large need for high quality environmental technology. By investing in Nederman's systems and products, Nederman is represented by its own sales companies in Aus- considerable benefits can be realised in the form of operational tralia, India, Indonesia, China, Malaysia and Thailand. In other safety and efficient recycling of residual products and energy. countries, distributors manage sales. In China, the head office Both environmental and labour issues are being more and more is located in Shanghai but the country is covered by a number important as the general standard of living increases in the re- of regional offices. The major competence in larger systems gion; at the same time, the regulatory requirements for environ- and installations within the Australian organization is being mentally friendly production are increasing in China and in other used increasingly throughout the entire region to ensure that countries. By means of an increased environmental awareness these projects are carried out as efficiently and successfully as and insight into the importance of investing in high-quality solu- possible. Service sales remain relatively low although they are tions, Nederman can enrich its dialogue with customers. The expected to grow as the number of sold products and systems customer segment which currently has the strongest perfor- increases. Today it is especially Australia and China that have mance is the machinery and automotive industry, which is the significant service activities. Nederman had an average number driving force behind much of the growth in the region. Foundries of employees of 298 (304) in APAC in 2017. and smelters, welding and mechanical processing are also reporting positive signs. The food industry, which was previously OPERATIONS fragmented and underdeveloped, is now growing to become an Nederman has a strong production structure within APAC important player with high demands for quality and safety. with plants in Melbourne, Australia (assembly and distribution); Suzhou, China (production); Qingpu, China (assembly and ORGANISATION distribution), and Bangkok, Thailand (production). The plant in In 2017, Nederman has worked intensively to strengthen the or- Thailand, which was taken into operation in 2013, serves the ganisation's ability to develop profitable transactions. A number Southeast Asia market. The plants in China serve the Chinese of important recruitments have been made at the same time market as well as other Asian markets. Nederman is currently as an important task of renewing and clarifying various roles increasing local production in the region, while purchases from in the operation has been done. A great deal of knowledge and local suppliers is also rising. By having an increasing portion of inspiration have been gathered from other parts of the Neder- local production and purchasing, Nederman can make faster man Group, among them, APAC, just like EMEA, has launched a deliveries at lower cost.

THREE QUESTIONS TO SVEN KRISTENSSON, CEO AND INTERIM SVP DIVISION APAC

How do you view the development in 2017? “2017 was the year we turned the negative trend around with an improvement in demand in China, India and Australia. For the entire year, incoming orders increased organically by nearly 20 percent, while we also managed to improve profitability considerably by focusing on expertise and quality.”

What were the highlights of the year? “Simply, the most important thing in 2017 is that we turned an earlier loss into a profit. The improvement in our adjusted operating profits amounts to just over SEK 18m. We are not pleased with the level of profitability within APAC, but the trend within 2017 is a considerable step in the right direction.”

How do you see the future for APAC? “The macroeconomic environment with continued industrialisation, urbanisation and a growing middle class continues to indicate that Nederman has an important role to play in the region. More markets are developing positively for the moment, and we can see an increase in activity in the environmental field in China.”

33 Nederman’s 2017 Annual Report and Sustainability Report

Nederman Insight

The ever-more rapid digitalisation creates new opportunities for Nederman to develop and improve its range offered to customers. The possibilities with connected services, Internet of Things (IoT) and mobile units such as smartphones and tablets, together offer a platform that can provide Neder- man's customers with new services and new values. Nederman Insight has been established to capi- talise on and to develop these possibilities. That is why, in the fourth quarter of 2017, the Norwegian company NEO Monitors was acquired, with its world-leading solutions for the measurement of gases and dust in all kinds of industries.

ACQUISITION OF NEO MONITORS IoT-PLATFORM NEO Monitors is a global pioneer within laser-based solutions The digital expertise offer is based on Nederman Insight’s IoT for the measuring of gases and dust in all types of industries. platform. This platform, which consists of hardware installed The company has taken a leading position in all generations of in Nederman’s products and solutions, as well as software that laser-based measuring techniques and currently has the larg- communicates with the cloud, provides customers with informa- est installed base of TDLS (Tunable Diode Laser Spectrometry) tion and insights on critical parameters and processes. analysers with more than 11,000 instruments installed in more Nederman Insight than 40 countries. The company’s expertise and technology allows for more than 100 different configurations customised IoT to the needs of the customer, which helps global industries to achieve better process control, reduce operational expenses and increased efficiency.

NEO Monitors is now a part of Nederman Insight. NEO Monitor’s trademark and team will continue as before. The solutions will be an integrated part of the Nederman Insight Applications and the digital eco system based on Connectivity and the Internet Sustainability Maintenance Yield System performance Energy consumption Uptime of Things.

STRATEGIC GOALS Since 2016, Nederman has conducted pilot studies in four differ- The goal of Nederman Insight in the upcoming years is to devel- ent segments of industry, which together constitute approxi- op new digital solutions for a complete ecosystem of services mately 25 percent of Nederman’s total sales. The results from that can be marketed to both new and existing installations of the studies are implemented into Nederman Insight as services Nederman systems. In order to succeed, the company will grad- and solutions with the goal of becoming vital in the customer’s ually build the new and necessary expertise in order to create an operation. attractive offer with a robust infrastructure for IoT. The new digital services and solutions will strengthen Neder- DIGITAL FLOW FROM FILTER TO FACT man’s offer, and enrich the relations with customers in a way The vision is to create a digital flow from filter to fact. The first that has not previously been possible. step, Performance Tracking, consists of the means via digital solutions to provide the customers with data on performance in their filter solutions. The goal for the next step, Process Optimi- sation, is to be able to help the customers to use this knowledge and to optimise their processes. One further step, Compliance, involves the customer having total control and reliable documentation of the industrial environment and emissions.

34 Director’s report | Nederman Insight

The vision is to create a digital flow from filter to fact. The first step consists of the means via digital solutions to provide the customers with data on performance in their filter solutions. Data that is always available, everywhere.

35 Nederman’s 2017 Annual Report and Sustainability Report

Sustainability Vision and commitment

Nederman’s Sustainability Report includes pages 36-37 (Vision and commitment); 38-39 (Agenda 2030); 40-41 (Results); 44-45 (Review of business operations); and 48-49 (Risk management). The report constitutes Nederman’s statutory sustainability report as required by the Swedish Årsre- dovisningslagen and includes the entire Nederman Group.

Nederman's business operation with solutions that improve the • Improving conditions for health and safety among the cus- working environment and limit emissions is deeply rooted in the tomer’s employees ambition to make the world better and safer. It is therefore natu- • Building confidence in Nederman’s ability to deliver the ral for Nederman to have taken a further step and integrate its above work on sustainability in its business strategy. Six areas have been identified as the most vital in order to be an Seen from a sustainability perspective, Nederman’s products attractive partner to its customers. have the greatest effect during the long period in which the cus- • Integration of a sustainability perspective in all parts of tomers use them. Nederman’s sustainability strategy therefore the company’s business strategy focuses on: • Economic development and financial strength • The optimisation of the customer’s use of resources by in- • An offering that consists of effective solutions for clean air creasing efficiency, developing new products and services, • An offering that consists of energy-efficient products and and in improving the use of resources in existing solutions systems • Increasing the customer’s awareness and expertise by • An offering that helps customers generate an efficient use explaining the value of Nederman’s solutions in improving of resources sustainability in operations • Innovation with a clear sustainability perspective • Increased awareness of sustainability among Nederman’s customers

36 Director’s report | Sustainability

CHALLENGES AND OPPORTUNITIES IN THE VALUE CHAIN

Few issues today are as important as sustainability issues. For Sales – Crucial to Nederman’s sales successes is the company’s Nederman, this offers considerable opportunities, but also risks. ability to identify customer challenges and to offer solutions for In order to be able to navigate a complex business landscape and a more sustainable production and improved production effi- to ensure that Nederman contributes to sustainable develop- ciency. ment, the company has analysed which global driving forces have the greatest effect on Nederman and where in the compa- Development of system solutions – Part of what Nederman has ny’s value chain the effect is greatest and how Nederman should to offer consists of system solutions, i.e., customised solutions act. for air purification in various industries. This work offers considerable opportunities to design knowledge-intensive solutions Development of products and services – Nederman shall devel- optimised for sustainable production. op products and services that offer the customer sustainability advantages. The development work will also be carried out so Distribution – Efficient distribution is an integral part of Neder- that all parts of the product can be reused, recycled or the ener- man’s offering. By reducing the environmental impact, Neder- gy recovered. man helps to make the entire value chain as efficient as possible.

Suppliers – Nederman will focus on reducing the negative im- Product in use – Nederman’s greatest environmental impact oc- pact of the supply chain and work for greater transparency curs during the use of the product. Product design is therefore around suppliers and their work. The goal is to develop strategic also the single biggest opportunity to contribute to sustainable partnerships that can help Nederman to develop and maintain a development by designing products that are as effective as pos- sustainable product offering. sible while also helping to make the workplace safe.

Own operation – Within the company’s own operation, sustain- From cradle to cradle – Nederman’s goal for products that ability issues shall be addressed in a manner reflecting Neder- have reached their maximum useful life is to form the start of man’s core values. The most important areas of this work are something new by recycling its parts. energy, waste and emissions, human resources, innovation for sustainability, economic strength and safe and healthy workplaces.

NEDERMAN’S COMMITMENTS

Nederman has formulated its sustainability in three dimensions: Our customers our company, our customers, our planet. Sustainable production – With our competence and big-picture thinking we will exceed customer expectations and contribute Our company to effective, profitable and safe production environments. We Confidence – Together, we will create a culture of confidence, will share our expertise to help customers explore how their openness and transparency, where our employees feel inspired waste can be recycled and reused. That’s how we will help cut and our customers and investors have confidence in our integrity. costs and make the most of limited resources.

People & competence – Fuelled by the knowledge, insights and Our planet passion of our employees and strategic partners, we will make a Do more with less – Together with our cooperative partners positive difference to our customers, our value chain and for the along the value chain, we will minimise our environmental im- planet. pact by designing products with long lifetimes, based on smart material use and optimised for clean and efficient use. We Economic resilience – We will secure profitable growth to create manufacture products with the lowest possible environmental financial strength and drive and execute our strategy, delivering impact. lasting value for our stakeholders.

37 Nederman’s 2017 Annual Report and Sustainability Report

Sustainability Agenda 2030

Agenda 2030 is the UN’s new agenda consisting of 17 global goals with a total of 169 sub-goals. The global goals and Agenda 2030 refer to eradicating poverty and hunger, enacting human rights for all, achieving equality and sovereignty for all women and girls, and securing a lasting protection for our planet and its natural resources. The global goals are integrated and indivisible, and they balance the three dimensions of sustainable development: economic, social and environmental. The goals affect everyone, countries and organisation, companies and individuals.

The global goals for sustainable development replace the millen- to be reached by 2030. (Sources for the above are fn.se and re- nium goals, which among other things involve environment and geringen.se) development no longer being treated as two separate issues. The processes of coming up with new goals has been open and The foundation of Nederman’s operation has by means of a clear inclusive with participants from large parts of the internation- focus on clean air and good working conditions always been al community, and they have been developed by various work sustainability. Thanks to this and to the strategic development groups, researchers and organisation. that Nederman has undertaken in recent years, the company has created a unique position with great opportunities actively The three dimensions of sustainable development - social, eco- to offer considerable contributions to a positive development in nomic and environmental - are integrated into the global goals. this social dimension through improved work environments and All the countries of the world shall work to attain these goals, the environmental dimension by limiting the amount of contam- and it is the responsibility of the respective government to see ination into the air. The next page shows three examples of how to it that the goals are met in their own countries. The goals are Nederman will contribute to the realisation of Agenda 2030.

38 Director’s report | Sustainability

Goal 8: Promote inclusive and sustainable economic growth, employment and decent work for all

Removing dust particles can have a direct effect on production efficiency and the use of resources. The particles that are released can endanger the health of employees, contaminate surfaces and damage electronic components used in production. Nederman's products solve challenges by capturing welding fumes, oil mist and other particles at source and by separating cutting fluids, abrasives and metal shavings for recycling. In its own operation, the company constantly strives to be able to achieve more with less use of resources. As an example, energy intensity in Nederman's production facilities has fallen by 16.2 percent since 2013. Nederman has a well-established code of conduct, and the company continually works to ensure that this is obeyed by employees and suppliers.

Goal 9: Build resilient infrastructure, promote sustainable industrialization and foster innovation

Nederman’s product range is comprehensive with everything from mobile filters to total solutions for entire production lines and plants - both existing and new. With the help of new technology, Nederman can help optimise production efficiency. The possibilities with connected services, Internet of Things (IoT) and mobile units such as smartphones and tablets, together offer a platform that can provide Nederman's customers with new services and new values. One example of this is Nederman Insight, which collects and analyses value-creating information in order to help customers to monitor system performance and ensure optimal operation, plan service needs and monitor compliance with laws and regulations.

Goal 12: Ensure sustainable consumption and production patterns

Sustainable production is Nederman’s core business. In addition to solutions that process particles in the air, Nederman offers solutions for the gathering, processing and recycling of refuse, for example wood and metal chips. With its unique applied skill, Nederman can help its customers create a unique solution for their production and thereby contribute to making it more sustainable. Nederman constantly works to increase sustainability within its own business operation. The recovery rate from refuse from Nederman factories has increased from 85.2 percent in 2013 to 94.4 percent in 2017.

39 Nederman’s 2017 Annual Report and Sustainability Report

Sustainability – results

The aim of Nederman's sustainability work is to create value for our customers, our employees and our shareholders. By continuously developing our sustainability work, Nederman wants to minimise our risks, develop and refine our customer offering, identify new future business opportunities and thereby boost our financial strength even further. An important part of this work is to openly report Nederman's results in key sustainability areas.

The number of accidents has decreased somewhat from the 2012. Nederman’s goal is to reach 95 percent by 2020; however, previous year, but Nederman’s ambition is to reduce the number at the current pace, this should be possible as early as 2018. even further. One important step in this work is in ensuring that all incidents and accidents are actually reported and that work is The share of suppliers having signed onto Nederman’s code of constantly being done to identify risks and make improvements. conduct has decreased as compared with the previous year. In During the year, Nederman has improved the internal system for order to ensure that Nederman’s goal is met that at least 85 per- the reporting and processing of incidents and accidents in order cent of all purchased goods must come from suppliers that have to support the local plants in their work. accepted Nederman’s code of conduct, the company will implement more frequent internal follow-ups. The quality costs remain at a good level, although somewhat higher than in the previous year. The numbers pertain to quali- POLICIES AND EXAMINATION ty-related material costs in production. Nederman’s Code of Conduct summaries the company’s policies relating to social circumstances, staff, respect for human rights Nederman has increased the proportion of renewable energy in and countering corruption. All employees and business partners the production from 15 percent in 2016 to 21.2 percent in 2017. are required to abide by the Code of Conduct. Nederman constantly reduces its energy consumption and currently uses 16.2 percent less energy in relation to sales as com- The environmental efforts comply with ISO 14001:2015. The pared with 2013. The increased proportion of renewable energy company’s Code of Conduct and environmental policy can be and the energy savings have resulted in a reduction of the total read at https://www.nederman.com/en/sustainability. quantity of CO2 from energy consumption by approximately 1,000 tonnes in 2017. CO2 emissions from transports remain an Compliance is monitored through internal and external audits, area for improvement. Nederman has reduced emissions by just as well as by audits of suppliers. In 2017, 50 supplier audits were over 10 percent compared with 2016, but it remains at a high conducted. Nederman has an internal process for reporting sus- level. Above all, air transportation needs to be reduced. pected violations of the Code of Conduct. In 2017, no such report was received.” Nederman's recovery rate continues to increase compared to previous years, and the company currently recovers 94.5 percent of all refuse, which can be compared with 85 percent in

40 Director’s report | Sustainability

Direct energy consumption Total energy consumption Percentage of renewable energy, %

Direct energy consumption in produc- Direct energy consumption in produc- Percentage of renewable energy in tion in relation to sales (kWh/SEK t) tion in relation to sales (kWh/SEK t) production is 21 % (15)

kWh/kSEK kWh/kSEK

8 15

12 6 Mål 2020 Mål 2020 9 4 6

2 3

0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 The figures for 2014 onwards include The figures for 2014 onwards include acquired companies and changes in the acquired companies and changes in the production structure. production structure.

Carbon dioxide emissions per transport mode Quality failure costs Waste recovery in production, %

The figures are partly based on esti- Quality failure costs in production in mates made within Nederman. relation to the 2013 level, in %

70 Sea 100 100 Target and 60 2020 land 80 80 50

40 60 Target 60 2020 Air 30 40 40 20 20 20 10

0 0 0 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 The figures for 2015 and 2016 include acquired companies and changes in the production structure.

Accidents Sick leave, % Gender diversity, %

Number of accidents resulting in at least one day of sick leave per 1,000 employees % 100 30 3 Men 80

20 2 60

40 10 1 Women 20

0 0 2014 2015 2016 2017 2014 2015 2016 2017 0 2013 2014 2015 2016 2017

Nederman’s sustainability goals

Energy consumption CO2 emissions Recovery Code of conduct

-20% -20% 95% 100% Reduce energy consumption in At the end of 2017, total carbon Achieve 95 percent recycling of 100 percent of the Company’s production by 20 percent by 2020 dioxide emissions increased by 22 waste in production by 2020. At external suppliers shall work in compared with 2013. At the end percent, while the emissions related the end of 2017, recovery was 94.4 accordance with Nederman’s Code of 2017, the reduction was 16.2 to sales value had decreased by just percent. of Conduct. At the end of 2017, this percent. more than 20 percent. figure was 81 percent.

41 Nederman’s 2017 Annual Report and Sustainability Report

The Nederman share

Nederman’s ambition is continuously to provide the financial markets, shareholders and other stakeholders with accurate, consistent and relevant information in order to increase understanding of the Group and comply with the regulations for listed companies. The Nederman share has, since 16 May 2007, been listed on Nasdaq Stockholm under the NMAN ticker. Since January 2014 the share has been listed on Nasdaq Stockholm Mid Cap. A brief history of the Company and its share is shown in the box on the next page.

The parent company’s shareholders’ equity at year-end was SEK ten largest shareholders owned 81.6 (84.7) percent of the total 868.8m (789.8). The capitalisation value was SEK 2,928.8m shares. The largest individual shareholder is Investment AB La- (2,196.6). tour. The table on the next page shows Nederman ownership at 31 December 2017. COMMUNICATION WITH THE MARKET Nederman’s representatives meet regularly with analysts, DIVIDEND AND DIVIDEND POLICY creditors and shareholders to provide a continuous picture of Nederman’s dividend policy is to pay a dividend amounting to developments during the financial year. Printed interim reports, 30-50 percent of net profit, taking into account the capital financial statements and annual report are distributed to share- structure and acquisition plans. For the 2017 financial year, the holders who so wish. These reports, along with the Company's Board and the CEO propose a dividend to shareholders of SEK press releases, are also available on the Company’s website in 6.00 per share (5.50). Swedish and English. ANALYSTS WHO FOLLOW NEDERMAN OWNERSHIP STRUCTURE • Daniel Lindkvist from Handelsbanken, The number of shareholders at year-end was 2,657 (2,334). [email protected] Each share in Nederman gives entitlement to one vote. The percentage of Swedish shareholders was 91.3 percent (94.1). The

Price and volume trend 2017 Share price and trading volume, 2013-2017

300 300 300 360

250 250 250 300

200 200 200 240

150 150 150 180

100 100 100 120

50 50 50 60

0 0 0 0 SEK JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC No. SEK 2013 2014 2015 2016 2017 Antal Nederman Nederman OMX Stockholm PI Share turnover per month, 000s OMX Stockholm PI Share turnover per month, 000s Source: Source:

42 Directors’ Report | The Nederman share

Data per share 2017 2016 2015 2014 2013 Earnings per share after tax, SEK 15.93 14.72 13.07 8.05 5.94 Share price as at 31 December, SEK 250.0 187.5 255.5 167.5 190.0 Market capitalisation, SEK m 2 928.8 2,196.6 2,993.3 1,962.3 2,225.9 Cash flow, SEK m 79.3 19.2 -68.4 39.3 41.3 Proposed dividend per share, SEK 6.00 5.50 5.00 4.00 4.00 Dividend growth, % 9.1 10.0 25.0 0.0 0.0 Yield, % 2.40 2.93 1.96 2.39 2.11 P/E ratio 15.7 12.7 19.5 20.7 31.9 Profits distributed as dividend, % 38 37 38 50 67 Shareholder’s equity, SEK m 1 075.8 982.2 837.1 733.3 619.8 Issued no. of shares, 31 Dec. 11,715,340 11,715,340 11,715,340 11,715,340 11,715,340 Proposed dividend as a percentage of equity, % 6.5 6.5 7.0 6.4 7.6

Nederman’s major shareholders Shareholding Votes, % History Investment AB Latour 3,512,829 29.98 1944 Company founded by Phillip Nederman. Ernström Kapitalpartner AB 1,175,000 10.03 1983 Listing on the Stockholm Stock Exchange. IF Skadeforsäkring AB 1,160,400 9.90 1985 Active becomes the new majority shareholder. The Company was delisted. Swedbank Robur fonder 877,643 7.49 1991 Nederman sold to Esab. Lannebo Micro Cap 773 603 6.60 1994 Charter acquires Esab and becomes the new majority shareholder. Fjärde AP-Fonden 595,842 5.09 1999 Venture capital company EQT acquires Nederman. Lannebo Micro Cap II 570 047 4.87 2007 Listing on the Nasdaq Stockholm Small Cap list. Fondita Nordic Micro Cap SR 400 000 3.41 2010 Nederman acquires Dantherm Filtration. Handelsbanken Fonder 252,157 2.15 2012 Nederman acquires Environmental Filtration Technologies. UN Joint Staff 239,605 2.05 2013 Nederman qualifies for Nasdaq Stockholm Mid Cap. Other owners 2,158,214 18.43 2014 Nederman is moved to Nasdaq Stockholm Mid Cap. Total 11,715,340 100.00 2017 Nederman acquires NEO Monitors AS

Shareholders by category, % Shareholders per country, % Financial companies 65.17 Sweden 91.3 Social security funds 7.00 Finland 6.4 Non profits 0.20 UK 1.4 Other Swedish legal entities 11.07 Luxembourg 0.3 Non-categorized legal entities 0.17 France 0.2 Private Swedish individuals 7.71 USA 0.2 Foreign domiciled owners 8.68 Denmark 0.1 Total 100.00 Other 0.1 Total 100.0

Dividend per share, SEK Earnings per share, SEK Market capitalisation, SEK m

The 2017 dividend refers to the Board's proposed dividend Kr Kr 6 15 3000

5 2500

4 10 2000

3 1500

2 5 1000

1 500

0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

43 Nederman’s 2017 Annual Report and Sustainability Report

Review of business operations

The Board of Directors and CEO of Nederman Holding AB (publ), STOCK EXCHANGE LISTING Swedish company reg. no. 556576-4205, hereby submit their Since January 2014 the company’s shares are listed under the Annual Report for the 2017 financial year. “NMAN” ticker on the Nasdaq Stockholm Mid Cap list. The Mid Cap segment includes companies with a market capitalisation of BUSINESS between € 150 million and € 1 billion. At 31 December 2017, the Nederman is a world-leading supplier of products and solutions number of shareholders was 2,657 (2,334). in environmental technology, focusing on air filtration and recycling. The company’s products contribute to reducing the envi- ACQUISITIONS AND DIVESTMENTS DURING THE YEAR ronmental impact from industrial manufacturing, creating clean On 7 November 2017, Nederman acquired 100 percent of the and safe working environments and increasing production effi- shares in NEO Monitors AS. NEO Monitors is a global pioneer ciency. The business offer to customers ranges from feasibility within laser-based solutions for the measuring of gases and studies and project planning to installation, commissioning and dust in all types of industries. NEO Monitors becomes part service. Manufacturing is certified in accordance with ISO 9001 of Nederman Insight. NEO Monitor’s trademark and team will and ISO 14001. Units for production and assembly are located in continue as before. The solutions will be an integrated part of Australia, Brazil, Denmark, China, Norway, Poland, UK, Sweden, the Nederman Insight Applications and the digital eco system Thailand, Germany and the USA. Nederman has global certifi- based on Connectivity and the Internet of Things. NEO Moni- cation for quality and the environment, in which all production tors AS has approximately 40 employees and in 2017 had sales units in Nederman and Nederman Holding AB are included. Sales of SEK 132.0 m. are conducted through our own sales companies and distributors in over 50 countries. Most sales take place in Europe and INCOMING ORDERS AND SALES IN 2017 North America, although Nederman is also active on a number Incoming orders totalled SEK 3,157.3 m (2,992.3), which organi- of growth markets. The Group had 1,803 (1,743) employees at cally is an increase of 4.6 percent compared with 2016. Net sales year-end. totalled SEK 3,148.5 m (3,107.3), which organically is an increase of 0.1 percent compared with 2016. GROUP STRUCTURE Nederman Holding AB (publ) is the parent company of the Group EARNINGS with directly or indirectly wholly-owned subsidiaries as stated Consolidated operating profit for 2017 amounted to SEK in note 19. 278.1m (250.3). Adjusted operating profit amounted to SEK 285.8m (250.3). Adjusted operating margin was 9.1 percent Operationally, the Group works in three geographic segments: (8.1). Profit before tax was SEK 260.1m (231.7). Net profit was EMEA (Europe, Middle East and Africa), Americas (North and SEK 186.3m (172.1), which gave earnings per share of SEK South America) and APAC (Asia and Pacific region). 15.93 (14.72).

Operations is responsible for manufacturing, distribution, PRODUCT DEVELOPMENT product care, logistics, purchasing and quality systems. Manu- The Group’s costs for the development of the existing product facturing, assembly and distribution are carried out in eleven range and developing new products amounted to SEK 14.2 m countries on five continents. (7.8). In the consolidated statement of financial position, Corporate Development is responsible for marketing and SEK 6.8 m (6.7) has been capitalised. communication, strategic product planning, R&D, internal training and strategic business development. INVESTMENTS AND DEPRECIATION/AMORTIZATION Finance & IT and Human Resources are two group functions Consolidated investments in intangible assets during the year with the task of supporting operational activities and being re- amounted to SEK 30.1 m (26.1). Amortization of intangible as- sponsible for global coordination within each function. sets during the year totalled SEK 23.7 m (16.5). Consolidated investments in tangible assets during the year totalled SEK 23.3 m

44 Directors’ Report | Review of business operations

(19.8). Depreciation of tangible assets during the year totalled PARENT COMPANY SEK 29.0 m (31.2). The activities of the parent company comprise Group functions. The parent company shall also own and manage shares in sub- CASH FLOW sidiaries and manage the financing of the Group. The year’s cash flow amounted to SEK 79.3 m (19.2) and the cash flow from the operating activities amounted to SEK 279.3 m OUTLOOK (239.7) The cash flow has been affected positively by changes in The situation in Europe continues to improve with a positive operating capital. During the year, the cash flow has been affect- development in both incoming orders and in sales. In the United ed by a higher investment level as compared with previous year, States, we also see continued stable sales in the core business, and by the acquisition of NEO Monitors. while uncertainty concerning large project is expected to remain for some time, even if we have seen a certain amount of LIQUIDITY AND FINANCIAL POSITION improvement toward the end of the year. In Asia, many markets At the end of the period the Group had SEK 360.9 m in cash and perform positively. In China, an increased level of activity within cash equivalents as well as SEK 98.4 m in available but unutilised the environmental field can be noticed. overdraft facilities. In addition, there was available loan facility of SEK 472.7 m which is a part of Nederman’s loan agreement NOTICE TO ATTEND GENERAL MEETINGS OF with SEB and a further available loan facility of SEK 104.6 m SHAREHOLDERS within Nederman’s loan agreement with SHB. The notice to attend the Annual General Meeting shall be issued no sooner than six weeks and no later than four weeks prior to Net debt totalled SEK 585.3 m (524.3). Shareholder’s equity the general meeting of shareholders. amounted to SEK 1,075.8 m (982.2), equivalent to an equity ratio of 36.2 percent (37.0) and a financial net debt/equity ratio of EVENTS AFTER THE END OF THE FINANCIAL YEAR 54.4 percent (53.4). There were no significant events after the end of the reporting period. PROPOSED APPROPRIATION OF PROFITS The following amounts are at the disposition of the Annual Gen- eral Meeting of Nederman AB (publ):

Share premium reserve 5,866,700 Retained earnings 412,971,743 Net profit for the year 143,344,159 Total SEK 562,182,602

The Board of directors and CEO propose a dividend to shareholders of SEK 6.00 per share 70,177,506 * to be transferred to the share premium reserve 5,866,700 to be transferred to retained earnings 486,138,396 Total SEK 562,182,602

* Based on the number of shares outstanding as at 31 December 2017. The dividend amount may be subject to change as treasury shares held may be sold up to the record day of 13 April 2018.

EMPLOYEES The average number of employees during the year was 1,757 (1,760). Other personnel information is shown in Note 7.

45 Nederman’s 2017 Annual Report and Sustainability Report

Multi-year overview

SEK m 2017 2016 2015 2014 2013

Operating revenues and earnings Net sales 3,148.5 3,107.3 3,198.0 2,826.9 2,659.2 EBITDA 330.8 298.0 289.9 212.9 176.7 Adjusted EBITDA 338.5 298.0 311.0 247.9 219.4 Operating profit 278.1 250.3 242.0 165.7 127.5 Adjusted operating profit 285.8 250.3 263.1 200.7 170.2 Profit before tax 260.1 231.7 214.9 139.0 99.7 Net profit 186.3 172.1 152.8 94.3 69.7

Assets, equity and liabilities Fixed assets 1,471.3 1,157.8 1,135.2 1,071.5 998.4 Current assets 1,499.6 1,495.6 1,430.6 1,301.6 909.7 Cash and cash equivalents 360.9 287.8 261.4 325.0 270.0 Equity 1,075.8 982.2 837.1 733.3 619.8 Interest-bearing liabilities 946.2 812.1 897.0 881.6 840.9 Non-interest-bearing liabilities and provisions 948.9 859.1 831.7 758.2 717.4 Balance sheet total 2,970.9 2,653.4 2,565.8 2,373.1 2,178.1

Profitability EBITDA margin, % 10.5 9.6 9.1 7.5 6.6 Adjusted EBITDA margin, % 10.8 9.6 9.7 8.8 8.3 Operating margin, % 8.8 8.1 7.6 5.9 4.8 Adjusted operating margin, % 9.1 8.1 8.2 7.1 6.4 Return on equity, % 18.1 18.9 19.5 13.9 11.4 Return on operating capital, % 18.0 16.8 19.0 16.2 14.2 Capital turnover rate, multiple 2.0 2.1 2.3 2.3 2.2

Capital structure Net debt 585.3 524.3 635.6 556.6 570.9 Net debt/equity ratio, % 54.4 53.4 75.9 75.9 92.1 Net debt/adjusted EBITDA, multiple 1.7 1.8 2.0 2.2 2.6 Adjusted EBITDA/net financial items, multiple 18.8 16.0 11.5 9.3 7.9 Interest cover ratio, multiple 11.8 11.8 8.9 7.0 5.8 Equity/assets ratio, % 36.2 37.0 32.6 30.9 28.5 Operating capital 1,661.1 1,506.5 1,472.7 1,289.9 1,190.7

Share data Number of shares on closing date 11,715,340 11,715,340 11,715,340 11,715,340 11,715,340 Average no. of shares during the year, before dilution 11,696,251 11,691,969 11,681,340 11,681,340 11,715,340 Average no. of shares during the year, after dilution 11,696,251 11,691,969 11,725,969 11,725,969 11,746,765 Equity per share, before dilution, SEK 91.98 84.00 71.66 62.78 52.90 Equity per share, after dilution, SEK 91.98 84.00 71.39 62.54 52.76 Earnings per share, before dilution, SEK 15.93 14.72 13.08 8.07 5.95 Earnings per share, after dilution, SEK 15.93 14.72 13.03 8.04 5.93 Proposed dividend per share, SEK 6.00 5.50 5.00 4.00 4.00

Employees Average number of employees 1,757 1,760 1,833 1,803 1,924

46 Directors’ Report | Multi-year overview

Sales, SEK m Adjusted operating profit, SEK m Cash flow, SEK m From operating activities 3500 300 300

3000 250 250 2500 200 200 2000 150 150 1500 100 100 1000

500 50 50

0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Adjusted operating margin, % Net debt/equity ratio, % Organic sales growth in 2017, %

6 10 100 5 4 8 80 3 2 1 6 60 0 -1 4 40 -2 -3 20 2 -4 -5 0 0 -6 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Americas EMEA APAC The Group

Largest markets in 2017 Average number of employees Sales, SEK m

1000

2000 800

1500 600

400 1000

200 500

0 0 US Germany UK China Sweden 2013 2014 2015 2016 2017

47 Nederman’s 2017 Annual Report and Sustainability Report

Risk management

Nederman is subject to a number of risks. The table below provides an overview of the most common risks and how they are reduced.

Risks Policy / Action Financial risks

The Nederman Group is exposed to a number of financial risks, mainly in The Company's financial policy established by the Board of Directors connection with purchasing and sales of products in foreign currencies. provides guidelines for the management of financial risks within the Group. Exchange rates and interest rates affect the Group's results and cash The central finance function of the Group is responsible for identifying and flows. The Group is also exposed to refinancing and liquidity risk as well as effectively limiting the financial risks. For further information, see note 24. credit and counterparty risk. Market and competition

Nederman operates globally in a market characterised by a fragmented The Company follows and continuously monitors the general economic competitive picture and by cyclical variations in demand. Nederman’s development, relevant legislation, industry-specific activity levels and position is currently relatively strong, but it cannot be excluded that trends, competitors' performance and activities in most markets where changes in the market driven by inflation, interest rate changes, general it operates, with the aim of adapting the relevant parts of its strategy, economic conditions, political decisions, competitive structure etc. may market positioning and communication, offer etc. expose the Company to pressure in terms of pricing, market position, competitiveness, or others. The Group’s incoming orders can also vary between quarters depending on the timing when large orders are received. Products and services

The product does not meet Nederman’s or the customers’ requirements. ISO9001 has been introduced in order to ensure that the products meet specific standards. Risk analysis and reviews are carried out to ensure that the requirements are understood and feasible and processes are established to ensure that products meet the requirements. Supply Chain

Disruption in the supply chain due to fire, flood, power outage or major Identification of risks and minimisation of the consequences through machinery failure. business continuity planning.

Risks of concentrating plants in one location. Identification of risks and minimisation of the consequences through business continuity planning.

Infringement of the Code of Conduct. Suppliers must comply with Nederman’s Code of Conduct. Follow-up via self-assessment by suppliers and audits.

Price changes to raw materials and components. Work with suppliers, cost savings, negotiations etc. PRODUCTION

Production disruptions due to fire, power failure or machiner y malfunction. Identification of risks and minimisation of the consequences through business continuity planning.

Deliveries do not meet Nederman’s or the customers’ requirements. ISO9001 is introduced at all operational locations to ensure that processes are established so that deliveries shall meet customer requirements. Monitoring of work to improve results and constant improvement.

48 Directors’ Report | Risk management

Risks Policy / Action Health and safety

Health and safety issues at Nederman’s production facilities. Monitoring of incidents and accidents plus continual improvement.

Health and safety issues in regard to installation of Nederman’s products. Identification of risks as a par t of the ser vice process Planning of ser vices, which includes skilled personnel, equipment, protective equipment.

Health and safety risks relating to technical defects or deficiencies in Nederman’s overall commitment to quality assurance ensures product Nederman’s products. quality and function. Ensuring that legal requirements for safety, such as the Machinery Directive and the ATEX Directive, are complied with in full.

Health and safety issues at Nederman’s suppliers. Audits and monitoring of compliance with the Code of Conduct. Risks related to the Code of Conduct

Infringement of the Code of Conduct by Nederman’s personnel. Training in the Code of Conduct for managers and employees. Training in the fight against corruption and fraud for managers.

Infringement of the Code of Conduct by distributors or other business Training in the Code of Conduct for managers and employees. Business partners. partners must adhere to Nederman’s Code of Conduct. Security risks

Unauthorised access to information or property that belongs to Training in security issues for managers. Introduction of security policy Nederman, its employees or customers. and procedures. Environmental risks

Incidents at Nederman’s plants, e.g. chemical discharges, floods or fires ISO 14001 has been introduced at all production facilities to ensure that that may affect the environment. environmental impact is evaluated and that risks are identified. This also includes contingency plans to ensure that the impact of incidents is minimised.

Major environmental impacts from Nederman’s suppliers. Assessment of environmental impact in the value chain. Identification of risk suppliers. Audits and monitoring of improvement measures. Legal risks

Legal infringement at one of Nederman’s locations. Part of the CEO’s responsibility. ISO14001 provides a structure for monitoring environmental legislation.

Legal risks related to business operations, such as delayed deliveries, Contract terms which are formulated with care aimed at reducing delivery of defective products, unfulfilled commitments. Nederman’s liability.

49 Nederman’s 2017 Annual Report and Sustainability Report

Corporate governance

Nederman Holding AB (publ) is a Swedish public limited company meeting was attended by 40 shareholders, representing 79.74 with its registered office in Helsingborg, Sweden. Nederman was percent of the total shares and votes in the Company. listed on the Nasdaq Stockholm Small Cap list in 2007 and has been registered since 1 January 2014 on the Nasdaq Stockholm The meeting adopted the income statement and balance sheet, Mid Cap list. and the consolidated income statement and balance sheet, resolved to distribute the profit according to the proposal for the As a listed company, Nederman applies the Swedish Code of Cor- appropriation of profit entailing that a dividend of SEK 5.50 per porate Governance (the Code). The Corporate Governance Re- share be paid for the 2016 financial year, and granted discharge port has been prepared in accordance with the Swedish Annual from liability for the Directors and CEO. Accounts Act and the Swedish Companies Act, Nasdaq Stock- holm’s regulations for issuers, the Code, and other applicable The General Meeting granted authorisation to the Board to de- Swedish laws and regulations. In addition to rules pursuant to cide that the Company may issue new shares or repurchase the law or other legislation, Nederman uses internal control instru- Company’s own shares. ments that are also the basis for the Group’s corporate governance, including the Articles of Association, Rules of procedures The meeting decided in accordance with the proposal in the for the Board of Directors and the Managing Director, policy doc- notification of the meeting to elect seven Board members, that uments and the Group’s Code of Conduct. the fees to be paid to the Board would total SEK 1,575,000, of which SEK 450,000 to the Chairman and SEK 225,000 to each of Governance of the Nederman Group takes place through the the other Board members, except the CEO. It was also resolved shareholders via the General Meeting of Shareholders, the that no fees be paid to the Compensation Committee and that Board of Directors, the CEO and the senior executive manage- the auditors be paid against account submitted. According to the ment of Nederman in accordance with, among other things, the Nomination Committee's proposal, it was decided to re-elect Jan Swedish Companies Act, other laws and regulations, the Articles Svensson as Chairman of the Board, and to re-elect Gunnar Grem- of Association and the Rules of Procedure for the Board of Direc- lin, Per Borgvall, Ylva op den Velde Hammargren, Johan Menckel, tors. Considering Nederman’s group structure, the composition Gunilla Fransson and Sven Kristensson as Board members. of the board of directors in operating subsidiaries, often with representatives from the executive management team, consti- NOMINATION COMMITTEE tutes yet another share of governance for the Group. The 2017 AGM adopted instructions for the Nomination Commit- tee concerning the appointment of the Nomination Committee SHAREHOLDERS and its tasks. According to the instructions, the nominations At the end of 2017 the Company had 2,657 shareholders. Invest- committee will consist of one representative from each of the ment AB Latour was the largest shareholder with 29.98 percent three largest shareholders and the Chairman of the board. If of the shares, Ernström Kapitalpartner AB owned 10.03, and IF any of the three largest shareholders decline from their right to Skadeförsäkring AB owned 9.90 percent. The ten largest share- appoint a representative to the committee, then the right will holders held a total shareholding equivalent to 81.57 percent of the pass to the next largest shareholder. The nominations commit- shares. Foreign investors held 8.68 percent of the shares. For fur- tee’s tasks will be to prepare proposals, before the next AGM, for ther information on shares and shareholders, see pages 42-43. electing the Chairman of the board and other board members, election of the Chairman of the meeting, remuneration issues ANNUAL GENERAL MEETING and related issues, and where applicable, election of auditors. The Annual General Meeting (AGM) is the highest decision-making body in which shareholders can exercise their influence by In accordance with the AGM’s guidelines for the Nomination voting on key issues, such as adoption of income statements Committee’s work, Anders Mörck (Investment AB Latour, Pres- and balance sheets, allocation of the Company’s profit, dis- ident), Göran Espelund (Lannebo Fonder), Fabian Hielte (Ern- charge from liability of board members and the Chief Executive ström & Co.) and Fredrik Ahlin (IF Skadeförsäkring AB) have been Officer, election of board members, Chairman of the Board and appointed to the Nomination Committee for the 2018 Annual auditors, as well as remuneration to the board of directors and General Meeting. Jan Svensson, Chairman of Nederman’s Board, auditors. The AGM was held in Helsingborg on 19 April 2017. The is adjunct to the Nomination Committee. For any questions con- 50 Directors’ Report | Corporate governance

Overall structure of corporate governance in Nederman

Shareholders

Auditor General Meeting of Shareholders Nomination Committee

Board of Directors Remuneration Committee

CEO and Group management

cerning the Nomination Committee’s work, please contact An- capacity and costs to the prevailing economic conditions, the ders Mörck at [email protected]. Group's strategy for continued expansion and the Group’s financial framework and objectives. The Board had five formal BOARD OF DIRECTORS meetings in 2017 and has had one formal meeting so far in 2018. The board of directors is the second highest decision-making The 2017 AGM decided that the fees to the Board shall be a to- body after the General Meeting of Shareholders. The overall tal of SEK 1,575,000 to be distributed with SEK 450,000 to the assignment of the board is to decide on the Company’s busi- Chairman and SEK 225,000 to each of the other Board members, ness direction, its resources and capital structure, as well as its except for the CEO. It was further decided that no remuneration organisation and management. The board’s general obligations be paid to the remuneration committee and that the auditors be also include continuously evaluating the Company’s financial sit- paid on current account. uation and approving the Company’s business plan. In its general undertaking, the board addresses issues such as the Company’s The AGM elects board members annually for the time until the strategy, acquisitions, major investments, divestments, issuing next AGM is held. The board of directors shall consist of at least annual reports and interim reports, as well as appointing the three and no more than eight ordinary members and may be Chief Executive Officer, etc. supplemented with a maximum of three deputies. In addition to this there may be employee representatives. Board members are The board of directors follows written procedures that are elected annually at the AGM for the period until the next AGM. The adopted annually at the first board meeting. The rules of proce- Board members elected by the General Meeting are all independ- dure direct how the work, where appropriate, shall be divid- ent in relation to major shareholders and all, with the exception ed among the Board members, the frequency of board meet- of the CEO, are independent of the Company and its corporate ings and the extent to which deputies shall participate in the management. The Board thus meets the Code’s requirements for work of the Board and attend meetings. In addition, the rules independent Board members. The Members of the Board of Di- of procedure regulate the board’s obligations, quorum, division rectors are presented on page 54 and at nedermangroup.com. of responsibilities between the board and the CEO, etc. The board meets according to an annual schedule that is decided The main shareholder and the Board members conduct a de- in advance. In addition to these meetings, additional meetings tailed evaluation of the Board annually. The evaluation regards are held in connection with events of unusual importance. In among other things the board’s composition, board members addition to meetings, the Chairman of the board and the Chief and the board’s work and routines. The nomination committee Executive Officer conduct an ongoing dialogue with respect to has received the written evaluation done by the work of the managing the Company. board and has also obtained a report of the board’s work from the chairman of the board. Once a year the board evaluates the Management team in a systematic fashion. In this context, the Management team includes Nederman’s board consists of seven directors elected at the certain non-senior managers, i.e. broader group of employees. 2017 Annual General Meeting. The CEO is a member of the Board of Directors. The Chief Financial Officer is not a member of the In recent financial years, the Board had to consider many issues board of directors but participates at meetings by presenting of strategic importance. Particular importance has been given in information. The Chairman of the Board does not participate in 2017 to the acquisition and continued adjustment of the Group's the operational management of the Company. 51 Nederman’s 2017 Annual Report and Sustainability Report

Attendance at Board meetings which the Board shall propose to the AGM to decide on. The remu- Jan Svensson 5 of 5 possible neration committee has had one meeting in which minutes were Per Borgvall 5 of 5 possible taken in 2017. Gunilla Fransson 4 of 5 possible Gunilla Gremlin 5 of 5 possible The 2017 Annual General Meeting resolved on principles for re- Ylva op den Velde Hammargren 4 of 5 possible muneration to the Chief Executive Officer and senior executives, Sven Kristensson 5 of 5 possible which is presented in greater detail under the subheading ‘Remu- Johan Menckel 5 of 5 possible neration to the board of directors and senior executives’ below.

CHIEF EXECUTIVE OFFICER (CEO) Nederman has determined that the entire Board of Directors The division of work between the Board and the CEO is regulat- shall constitute the Audit Committee. The Company's auditor in- ed in the rules of procedure for the Board and in the instructions forms the full Board of the results of his/her work by attending a for the CEO. The CEO is responsible for implementing the business Board meeting at least once a year to present an account of the plan as well as day-to-day management of the Company’s affairs year's audit and his/her view of the Company's internal control and the daily operations of the Company. This means that the CEO system without the presence of any of the Company’s senior is entitled to make decisions on issues that fall within the scope executives. Therefore Nederman complies with the demand on of the ongoing management of the Company. The CEO may also, having an audit committee within the framework of the Swedish without authorisation from the Board, take measures which, with Code for Corporate Governance. The principles for remuner- regard to the scope and nature of the Company's operations, are ation to the Company’s auditor are resolved by the AGM. The of an unusual nature or of major significance and if the Board's 2017 AGM agreed to establish instructions for the nominations decision cannot be waited for without significant disadvantage committee concerning the composition of the committee and to the Company’s operations. The instructions for the CEO also its assignments. The nominations committee shall comprise the regulate his/her responsibilities for reporting to the Board. The Chairman of the board and two representatives. Once a year the board receives a monthly written report containing information committee shall convene the major shareholders well in advance following up the Company’s sales, orders statistics, operating re- of the AGM in order to gain support for proposals to the AGM’s sults and working capital’s developments. Moreover, the material election of a new board of directors. contains comments from the CEO and the Chief Financial Officer e.g. brief comments on the different markets. During months when AUDITOR the board meets the monthly report is more extensive and also The auditor audits the Company’s annual reports and account- includes statements of the financial position and cash flow state- ing, as well as the management of the board of directors and the ment, among other things. Chief Executive Officer. The auditor submits an audit report to the AGM after each financial year. From 2011, the AGM appoints Every year the senior executives formulate a strategy propos- the auditor(s) for a period of one year. At the AGM held on 19 April al, which is discussed and adopted at the board meeting held 2017, Ernst & Young AB was elected with Staffan Landén as audi- about halfway through the year. Work on the business plan tor in charge until further notice. Staffan Landén is an authorized (including the budget for the coming year) is usually carried out public accountant and member of FAR (the institute for the ac- “bottom-up” and based on the strategy adopted by the board counting profession in Sweden). Staffan Landén has many years of directors. The CEO and the Chief Financial Officer present the of experience auditing listed companies and major international business plan proposal to the board of directors. After the board audit assignments. He is currently the responsible auditor for, discussions of the business plan, it is usually adopted at the last among other companies, Vattenfall AB, Polygon AB, Semcon AB, meeting during the autumn. Moreover, the Company usually is- Thomas Concrete Group AB and National Electric Vehicle Sweden sues an updated forecast at the end of each quarter in conjunc- AB (NEVS). Staffan Landén is an exchange auditor appointed tion with the quarterly reports. by Nasdaq Stockholm. The Company’s auditor audits the annual accounts and financial statements and the Company’s current COMMITTEES operations and routines, to make an opinion on the accounting Questions about salary structuring and benefits for the Chief and management of the board of directors and the Chief Exec- Executive Officer and management are addressed and approved utive Officer. The annual accounts and financial statements are by a remuneration committee. This committee consists of chair- reviewed during January and February. In addition to Nederman, man Jan Svensson. The committee is a body within the Company’s Staffan Landen is the auditor of Oxeon AB in which Latour AB has Board with the task of preparing matters concerning remuner- a 31.08 percent shareholding. Independence in regard to Neder- ation and other employment terms for senior executives and man is not affected. Staffan Landén does not otherwise have drawing up the guidelines for remuneration for senior executives any assignments in companies over which Nederman’s principal

52 Directors’ Report | Corporate governance

shareholders, board members or Chief Executive Officer have any INTERNAL CONTROLS material influence. Fees for services to Ernst & Young AB other Control environment. Operational decisions are made at a than auditing amounted in 2017 to SEK 0.7 m and mainly relate to company or business area level, while decisions about strategy, tax advice and audit-related services. aims, acquisitions and comprehensive financial issues, are made by the parent company’s board and Group management. The REMUNERATION TO THE BOARD OF DIRECTORS AND internal controls at the Group are designed to function in this SENIOR EXECUTIVES organisation. The Group has clear rules and regulations for dele- The 2017 AGM adopted a policy regarding remuneration and em- gating responsibility and authority in accordance with the Group’s ployment terms for 2017. The proposal for the 2018 AGM is that structure. The platform for internal controls concerning financial the policy remains unchanged. The following main principles are reporting consists of the comprehensive control environment applied: A fixed salary for satisfactory work. In addition, there is and organisation, decision processes, authority and responsibility the opportunity for variable compensation linked to the Compa- that is documented and communicated. In the Group the most sig- ny's earnings and capital tied up. The variable compensation can nificant components are documented in the form of instructions amount to a maximum of 30–50 percent of the fixed annual sal- and policies, e.g. financial manuals, ethics policy (Code of Conduct), ary depending on the individual’s position of employment with communication policy, IT policy, financial policy and authorization the Company. lists. Nederman has a simply legal and operative structure and has drafted a governing and internal control system. The board fol- The CEO's pension plan is a defined contribution plan with an lows up on the organisation’s assessment of the internal control annual premium equivalent to 35 percent of the annual basic function, by means of, among other things, being in contact with salary. Pension payments for other senior executives follow the Nederman’s auditors. For this reason, the board has chosen not to ITP collective agreement, except for two executives for whom conduct any particular internal audit. pension payments amount to 8 times the basic index amount per year and 30 percent of basic salary, respectively. If the CEO Control activities. To safeguard the internal controls there are resigns, the term of notice is six months. If the Company termi- both automated controls, such as authorization controls in the IT nates the CEO’s employment, the CEO will be entitled to a sum system, and approval controls, as well as manual controls such as equivalent to 18–24 monthly salaries (the last six months with auditing and stock-taking. Financial analyses of the results as well reservation for new employment). For other senior executives, as following up plans and forecasts, complete the controls and give a 12-month period of notice for termination by the Company and a comprehensive confirmation to the quality of the reporting. six-months for resignation by executives, will apply. No agreements exist between Board members or senior executives and Information and communication. Documentation of govern- Nederman or any of its subsidiaries in regard to benefits after ing policies and instructions are constantly updated and commu- the end of their terms or positions of employment. nicated in electronic or printed format. For communication with external parties, there is a communication policy, which provides The Annual General Meeting held on 19 April 2017 approved guidelines to ensure that the Company's information obligations the Board's proposal that the annual programmes for variable are met in a correct and complete manner. remuneration shall be able to be supplemented by a programme for long-term bonuses (LTI). The 2017-2018 LTI programme has Follow-up. The CEO is responsible for the internal controls being been adopted for a minimum period of two years, and objec- organised and followed up according to the guidelines that the tives shall be set in such a way that there shall be a particularly board has decided on. Financial management and control is carried favourable development for the Company's shareholders. The out by the Group’s financial department. Financial reporting is an- outcome of the LTI programme which accrues to the senior alysed monthly and at a detailed level. At its meetings, the Board executive (net after income tax), shall be reinvested in options has dealt with the Company's financial situation and has also re- or Nederman shares bought on the stock exchange. Options or ceived reports from the Company's auditors on their observations. Nederman shares will only be possible on condition of approval by the relevant future Annual General Meeting of Nederman. ARTICLES OF ASSOCIATION The reinvested shares and options shall be retained by the sen- The Articles of Association include establishment of the Com- ior executive during the employment, though for at least three pany's activities, the number of Board members and auditors, years. The 2017-2018 LTI programme covers two years and how notice of the Annual General Meeting shall be made, treat- amount in maximum to 35 percent of the annual salary for the ment of matters at the Annual General Meeting and where the CEO and 20 percent of annual salary for other senior executives. meeting shall be held. The current Articles of Association were adopted at the AGM on 26 April 2011 and are available on the Company's website www.nedermangroup.com and in the 2017 Annual Report on page 109. 53 Nederman’s 2017 Annual Report and Sustainability Report

Board of Directors

Jan Svensson (1956) Per Borgvall (1958) Gunilla Fransson (1960) Gunnar Gremlin (1945) Chairman of the Board Elected Board member Elected Board member Elected Board member Board member and chairman since Board member since 2008 Board member since 2016 Board member since 1999 2008 • Board member of Troax Group • Board member of Eltel AB, • Chairman of the Board of • President and board member of AB and Louis Poulsen Lighting NetInsight AB, Enea AB, Dyckerhoff AG and Gremlin Investment AB Latour A/S Trelleborg AB, Permobil AB, Restaurang & Vin AB • Chairman of the Board of AB • Chairman of the Board of ProOpti AB. • Board member of Lonestar Inc Fagerhult, Tomra Systems ASA Wallvision AB • Chairman of the Board and • Owns 43,939 shares in and Troax Group AB • Does not own any shares in partner in Novare Peritos. Nederman • Board member of Alimak Group, Nederman • Does not own any shares in ASSA ABLOY and Loomis Nederman • Owns 5,000 shares in Nederman

Ylva op den Velde Hammargren Sven Kristensson (1962) Johan Menckel (1971) (1966) CEO and elected Board member Elected Board member Elected Board member Board member since 2008 Board member since 2016 Board member since 2011 • CEO and Group CEO of • CEO of Gränges AB • Business Transformation and Nederman Holding AB • Board member of Svenska CRM Manager, Industrial Sales, • Chairman of the Board of BK PAC Postkodföreningen AB AB SKF AB, Diedenporten AB, Scanbur • Does not own any shares in • Does not own any shares in A/S and Kristensson Holding AB Nederman Nederman • Deputy Chairman of the Board of Dr P Håkanssons Stiftelse • Board member of Swegon AB • Owns 110,096 shares in Nederman

54 Directors’ report

Senior executives

Sven Kristensson (1962) Matthew Cusick (1977) Hans Dahlén (1968) Per-Ove Eriksson (1956) CEO and Senior Vice President Senior Vice President Senior Vice President Group CEO CFO Division EMEA Duct & Filter Elements

• Employed since 2001 • Employed since 2011 • Employed since 2013 • Employed since 1996 • Owns 110,096 shares in • Owns 300 shares in Nederman • Owns 566 shares in Nederman • Owns 21,425 shares in Nederman Nederman

Tomas Hagström (1976) Per Lind (1957) Eva Carin Svensson (1964) Aage Snorgaard (1963) Senior Vice President Senior Vice President Senior Vice President Senior Vice President Division Americas Global Strategic Accounts HR Nederman Insight

• Employed since 2017 • Employed since 2007 • Employed since 2009 • Employed since 2017 • Does not own any shares in • Owns 4,995 shares in • Owns 1,547 shares in Nederman • Does not own any shares in Nederman Nederman Nederman

55 Nederman’s 2017 Annual Report and Sustainability Report

Consolidated income statement

1 January – 31 December SEK m Note 2017 2016 Net sales 2, 3 3,148.5 3,107.3 Costs of goods sold -1,948.6 -1,996.3 Gross profit 1,199.9 1,111.0

Other operating income 5 6.8 21.5 Selling expenses -662.7 -648.1 Administrative expenses -222.2 -209.0 Research and development expenses -14.2 -7.8 Acquisition costs 4 -7.7 - Other operating expenses 6 -21.8 -17.3 Operating profit 3, 7, 8, 9, 20, 25 278.1 250.3

Financial income 6.8 2.8 Financial expenses -24.8 -21.4 Net financial items 10 -18.0 -18.6

Profit before tax 260.1 231.7 Taxes 11 -73.8 -59.6 Net profit for the year 186.3 172.1

Net profit attributable to: Parent company’s shareholders 186.3 172.1

Earnings per share 18 before dilution (SEK) 15.93 14.72 after dilution (SEK) 15.93 14.72

56 Consolidated financial statements

Consolidated statement of comprehensive income

1 January – 31 December SEK m Note 2017 2016 Net profit for the year 186.3 172.1 Other comprehensive income Items that cannot be reclassified to the income statement Revaluation of defined-benefit pension plans 20 -3.3 -2.3 Tax attributable to items that cannot be reclassified to net profit 0.7 0.6 -2.6 -1.7 Items that have been or can be reclassified to net profit Exchange differences arising on translation of foreign operations -28.2 34.8 Cash flow hedging 17 3.1 -2.8 Tax relating to items that can be reclassified to the income statement 17 -0.7 0.6 -25.8 32.6 Other comprehensive income for the year, net after tax -28.4 30.9 Total comprehensive income for the year 157.9 203.0

Total comprehensive income attributable to: Parent company’s shareholders 157.9 203.0

57 Nederman’s 2017 Annual Report and Sustainability Report

Consolidated statement of financial position

31 December SEK m Note 2017 2016 Assets 4, 26 Intangible fixed assets 12 1,196.7 827.8 Tangible fixed assets 13 252.4 263.8 Long-term receivables 5.4 5.5 Deferred tax assets 11 16.8 60.7 Total fixed assets 1,471.3 1,157.8

Inventories 15 386.8 380.6 Tax assets 11 61.3 71.5 Accounts receivable 24 529.5 525.1 Prepaid expenses and accrued income 16 21.7 27.5 Other receivables 14 139.4 203.1 Cash and cash equivalents 28 360.9 287.8 Total current assets 1,499.6 1,495.6 Total assets 3 2,970.9 2,653.4

Equity 17 Share capital 1.2 1.2 Other capital contributed 345.9 345.9 Reserves 33.0 58.8 Retained earnings including net profit 695.7 576.3 Equity attributable to the parent company’s shareholders 1,075.8 982.2 Total equity 1,075.8 982.2

Liabilities 4, 26 Long-term interest-bearing liabilities 19, 24 822.5 702.4 Other long-term liabilities 22 153.7 1.4 Pension provisions 20 123.4 109.2 Other provisions 21 9.5 6.5 Deferred tax liabilities 11 17.0 20.9 Total long-term liabilities 1,126.1 840.4

Current interest bearing liabilities 19, 24 0.3 0.5 Accounts payable 24 298.9 315.2 Current tax liabilities 11 57.1 55.0 Other liabilities 22 238.6 277.0 Accrued expenses and prepaid income 23 148.6 156.9 Provisions 21 25.5 26.2 Total current liabilities 769.0 830.8 Total liabilities 3 1,895.1 1,671.2 Total equity and liabilities 2,970.9 2,653.4

For information on the Group’s pledged assets and contingent liabilities, see note 26.

58 Consolidated financial statements

Consolidated statement of changes in equity

Equity attributable to the parent company’s shareholders Retained Other earnings contributed Translation Hedging incl. this Total SEK m Share capital capital reserve reserve year's profit equity Opening equity 01/01/2016 1.2 345.9 25.1 1.1 463.8 837.1 Net profit for the year – – – – 172.1 172.1 Other comprehensive income Change in translation reserve for the year – – 34.8 – – 34.8 Cash flow hedging after tax – – – -2.2 – -2.2 Revaluation of defined-benefit pension plans, net after tax – – – – -1.7 -1.7 Total other comprehensive income – – 34.8 -2.2 -1.7 30.9 Total comprehensive income for the year – – 34.8 -2.2 170.4 203.0 Transactions with Group’s owners Dividend paid – – – – -58.4 -58.4 Share-based remuneration – – – – 0.5 0.5 Closing equity 31/12/2016 1.2 345.9 59.9 -1.1 576.3 982.2

Opening equity 01/01/2017 1.2 345.9 59.9 -1.1 576.3 982.2 Net profit for the year – – – – 186.3 186.3 Other comprehensive income Change in translation reserve for the year – – -28.2 – – -28.2 Cash flow hedging after tax – – – 2.4 – 2.4 Revaluation of defined-benefit pension plans, net after tax – – – – -2.6 -2.6 Total other comprehensive income – – -28.2 2.4 -2.6 -28.4 Total comprehensive income for the year – – -28.2 2.4 183.7 157.9 Transactions with Group’s owners Dividend paid – – – – -64.3 -64.3 Closing equity 31/12/2017 1.2 345.9 31.7 1.3 695.7 1,075.8

59 Nederman’s 2017 Annual Report and Sustainability Report

Consolidated cash flow statement

1 January – 31 December SEK m Note 2017 2016 Operating activities Operating profit 278.1 250.3 Adjustment for: Depreciation and amortisation of fixed assets 52.7 47.7 Other adjustments 28 3.6 -23.4 Interest received 2.9 2.8 Interest paid -24.8 -19.7 Income tax paid -46.0 -62.2 Cash flow from operating activities before changes in working capital 266.5 195.5

Cash flow from changes in working capital Increase (-)/Decrease(+) of inventories 9.7 -34.4 Increase (-)/Decrease(+) of operating receivables 62.6 63.9 Increase (+)/Decrease (-) of operating liabilities -59.5 14.7 12.8 44.2 Cash flow from operating activities 279.3 239.7

Investing activities Capital expenditure for tangible fixed assets -23.3 -19.8 Sale of tangible fixed assets 1.8 3.2 Capital expenditure for capitalised development costs -6.8 -6.7 Capital expenditure for other intangible fixed assets -23.3 -19.4 Sale of intangible fixed assets - 0.2 Acquisition of subsidies/business, net of cash 4 -233.3 5.2 Sale of financial assets -0.2 - Cash flow from investing activities -285.1 -37.3

Financial activities New loans 149.6 14.7 Change in interest-bearing liabilities -0.2 -1.4 Amortisation of loans - -138.1 Dividend paid to parent company shareholders -64.3 -58.4 Cash flow from financing activities 85.1 -183.2

Cash flow for the year 79.3 19.2 Cash and cash equivalents at the beginning of the year 287.8 261.4 Translation differences -6.2 7.2 Cash and cash equivalents at the end of the year 28 360.9 287.8

60 Consolidated financial statements

1 Accounting principles

Nederman Holding AB (publ) 556576-4205, the parent company of the Nederman IFRS 16 replacing IAS 17 from 1 January 2019 Group, has its registered office in Helsingborg, Sweden. According to the new standards, lessees shall report the commitment to pay leasing fees as a leasing liability in the balance sheet. The right to utilise the underlying COMPLIANCE WITH LAWS AND ACCOUNTING POLICIES asset during the leasing period is recognised as an asset. Depreciation of the assets The consolidated Financial statements have been prepared in accordance with the is recognised in the income statement similarly to interest on a leasing liability. International Financial Reporting Standards (IFRS) issued by the International Ac- Paid leasing fees are posted both as a payment of interest, and as an amortisation counting Standards Board (IASB). Furthermore, RFR 1, Supplementary accounting of a leasing liability. The standard makes an exception for leasing contracts with regulations for groups, issued by the Swedish Financial Reporting Board (RFR), has leasing periods of less than 12 months (short-term leasing contracts) and leasing been applied. Nederman Holding AB’s annual report and consolidated statements contracts pertaining to assets of a low value. During the year, the Group has begun were approved and signed by the board on 14 March 2018. The income statement, evaluating the effects of the standard. Both reported assets and liabilities are ex- balance sheet and statement of comprehensive income for the parent company, pected to increase. Moreover, the income statement and financial operations in the along with the consolidated income statement, consolidated statement of compre- statement of cash flow will be affected somewhat, but no reliable estimate of the hensive income and the financial position of the Group will be subject to adoption at relevant amounts has yet been able to be made. the Annual General Meeting on 19 April 2018. VALUATION PRINCIPLES APPLIED DURING THE PREPARATION OF CHANGES THAT CAME INTO EFFECT FROM 1 JANUARY 2017 THE PARENT COMPANY’S AND THE CONSOLIDATED FINANCIAL For the first time, the Group applies the new and modified standards and interpre- STATEMENTS tations in this annual report as shall be applied for the financial year beginning on Assets and liabilities are prepared on an historic acquisition cost basis, apart from 1 January 2017 or later. Except for the changes mentioned below, these have not financial assets and liabilities valued at fair value via the result. This category is prin- had any significant effect on the Group’s financial reports. No new or modified IFRS cipally made up of derivative instruments, which are stated at fair value. standards have been applied in advance. FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY IAS 7, Statement of Cash Flows (change) Items included in the financial statements of the various entities of the Group are IAS 7 has been changed and involves increased disclosure requirement on changes valued in the currency used in the financial environment of the companies (func- in liabilities attributable to the financial operation. The Group submits the informa- tional currency). The consolidated accounts use SEK, which is the parent company’s tion in Note 28, Statement of Cash Flow functional currency and presentation currency. All amounts, unless otherwise stated, are stated in SEK m (million). CHANGES THAT WILL COME INTO EFFECT IN 2018 AND BEYOND A number of new and modified IFRS standards have not yet taken effect and have CRITICAL ACCOUNTING ESTIMATES AND ASSESSMENTS not been applied in advance upon the preparation of the Group's financial reports. The company management and board of directors make assessments, estimates Below there is a description of the IFRS standards that come into effect in the up- and assumptions about the future that affect the recorded assets, liabilities, incoming financial year. come and expenses and other information reported, including contingent liabilities. These assessments are based on historical experience and assumptions that IFRS 9 Financial Instruments are considered reasonable in existing circumstances. The actual results might de- IFRS 9 encompasses the accounting of financial assets and liabilities, and it replaces viate from these estimates and assessments. Estimations and assumptions are re- IAS 39. IFRS 9 Financial Instructions takes effect on 1 January 2018 and the Group viewed regularly. Changes in estimates and assessments are reported during the will apply it as of this date. period when the change is made if the change only affects that period, or in the period when the change is made and future periods if the change affects both the cur- Similar to IAS 39, financial assets are classified into various categories, of which rent period and future periods. Assessments that have a significant impact on the some are valuated at amortised cost and others at fair values. Financial instru- Group’s earnings and financial position are described in Note 31. ments currently valued at the fair value will continue to be valuated at their fair value. Capital expenditures in debt instruments will be valuated at fair value via other SEGMENT REPORTING comprehensive income. The Group has made the assessment that loans and receiv- The Group’s business is managed and reported by operating segment, based on ables, as well as trade payables and loans will also continue to meet the criteria to geographic distribution. These segments form the basis for the highest executive be posted to amortised cost. Since IFRS 9 does not contain any change in general decision-maker’s allocation of the Group’s resources. The segments are measured principles for hedge accounting, the application of IFRS 9 will not affect the Group’s and consolidated according to the same accounting principles as the Group in total. financial reports in any essential regard. Intra-Group sales within segments are performed on market terms. The results of the operating segments include results up to the level of adjusted operating profit. The new impairment method requires that provisions for dubious receivables be Assets and liabilities include directly attributable items as well as items that can be posted based on the anticipated credit losses for the remaining duration, instead divided in a reasonable way. of for the already-occurring credit losses, which is the case according to IAS 39. The change results in earlier provisions for dubious receivables. The Group’s operating segments are: - EMEA (Europe, Middle East and Africa) In 2017, the Group analysed the effects of a transition to IFRS 9. In summary, IFRS 9 - APAC (Asia and Oceania) results in no effect on the Group’s financial position. - Americas (North and South America)

IFRS 15, Revenues from contracts with customers Descriptions of the operating segments are given on pages 22-33. IFRS 15 replaces all previously issued standards and interpretations addressing revenues with a single model for revenue accounting. According to IFRS 15, revenue shall CLASSIFICATIONS be recognised when a promised good or service is delivered to the customer, which Fixed assets and long-term liabilities consist essentially of amounts expected to be can occur over time or at a specific moment. The revenue shall consists of the amount recovered or paid back later than twelve months from the balance sheet date. The the company expects to obtain as remuneration for the transferred good or services. current assets and current liabilities consist essentially of amounts, which are expected to be regained or paid out within twelve months, calculated from the close IFRS 15 comes into effect for financial years beginning 1 January 2018 or later. The of the reporting period and amounts for which the Group does not have an uncon- standard will be applied by the Group as of this date and be fully retroactive. The ditional right to delay settlement of the debt for at least 12 months after the end of Group has evaluated the effects of IFRS 15 and does not expect any impact on the the reporting period. Group’s revenues and earnings from contracts with customers. The reporting of revenues from the sale of products and services will be recognised at the moment CONSOLIDATION PRINCIPLES that control is transferred to the customer. The reporting of revenues from sales Subsidiaries of solutions will continue to be recognised over time, since separate performance Subsidiaries are companies in which Nederman Holding AB has a controlling influ- commitments cannot be identified and solutions contain a substantial share of cus- ence. A controlling influence exists if Nederman Holding AB has influence over the tomisation. investment object, is exposed to or has a right to variable yields from its involve-

61 Nederman’s 2017 Annual Report and Sustainability Report

ment and can use its influence over the investment to affect yield. In assessing gain/loss on forward contracts used in the financial operations. Interest reve- whether there is controlling influence, consideration is given to shares linked to nues on interest-bearing financial assets and interest expenses on financial inter- voting rights. Business acquisitions are consolidated according to the purchase est-bearing liabilities are calculated with the application of the effective interest method. The cost of acquiring an activity or business is measured as the fair value method. This means that Interest income and interest costs include accrued trans- of the identifiable assets, liabilities and contingent liabilities at the date of acqui- action costs and any discounts, bonuses and other differences between the initial sition, irrespective of the extent of ownership without definitive influence in the recognised value of the receivable or liability, and the calculated future payments acquired activity. The difference between the acquisition value and the fair value received or paid during the term of the agreement. The interest component in fi- of the Group’s acquired identifiable net assets and assumed liabilities and contin- nancial lease payments is reported in the income statement via the application of gencies is recorded as goodwill if this difference is positive. If the difference is nega- the effective interest rate method. Income from dividends received is recorded tive the amount is recognised directly in the income statement. Acquisition-related when the right to receive the payment has been established. costs, such as fees for legal advice, legal aid, due diligence etc. are reported as a cost in the period they arise. Financial reports from the acquired activities are included in FINANCIAL INSTRUMENTS the consolidated accounts from the time of the acquisition. Divested activities are Financial instruments recorded among assets in the balance sheet include cash and included in the consolidated accounts until the date the definitive influence ceas- cash equivalents, accounts receivables, loans receivable, financial investments and es. The accounting principles have been applied consistently by Group companies. derivative instruments. On the liability side, are accounts payable, borrowings, pension liabilities and derivative instruments. A financial asset or financial liability is tak- Transactions eliminated during consolidation en up in the balance sheet when the company becomes a party to the contractual Intra-Group receivables and liabilities, income or expenses and unrealised profits or conditions of the instrument. Accounts receivable are included when the invoice has losses arising from intra-Group transactions, are entirely eliminated when prepar- been distributed. Liabilities are included when the other party has performed and ing the consolidated financial statements. a contractual obligation to pay exists, even if an invoice has not yet been received. Accounts payable are recognised when invoice has been received. A financial asset, Financial statements of foreign group companies or part of financial asset, is derecognised from the balance sheet when the right of Assets and liabilities in foreign group companies (of which none have high infla- the contract are realised, fall due or the company loses control of them. The same tion currencies), including goodwill and other consolidated surpluses and deficits applies to parts of a financial asset. A financial liability is removed from the balance are translated from the functional currencies of the foreign group companies to sheet when the obligations set out in the contract are fulfilled or are in some other the Group’s presentation currency, at the prevailing exchange rate on the balance way absolved. The same applies for a financial liability. A financial asset and a finan- sheet date. Revenues and expenses in a foreign business operation are translated cial liability are offset against each other and recorded with a net value only when into Swedish crowns (SEK) via an average rate of exchange. Translation differenc- there exists a legal right to offset the amount and the intention is to settle the items es arising from translation are reported in the consolidated statement of compre- with a net amount or to sell the asset and to pay of the debt at the same time. Acqui- hensive income and are accumulated in a separate section of shareholders’ capital sition and sale of financial assets are recorded on the transaction date, which is the named translation reserve. When a foreign Group company is sold the attributable day when the company undertakes to purchase or sell the asset. accumulated translation differences, previously realised directly against shareholders’ equity are realised in the consolidated income statement during the same Classification and Valuation period as the gain or loss of the divestment. The classification depends on the purpose for which the instrument was acquired. The classification of a financial asset is determined on the initial recording of the TRANSACTIONS AND BALANCE SHEET ITEMS IN FOREIGN CURRENCY instrument. Classification is then crucial for how the financial instrument is valued. Foreign currency transactions are translated to the functional currency at the Financial instruments, which are not derivatives, are initially measured at cost cor- exchange rate on the transaction date. Monetary assets and liabilities in foreign responding to the instrument’s fair value with the addition of transaction costs currencies are translated to the functional currency at the exchange rate on the apart from those financial instruments, which are categorised as financial assets at balance sheet date. Gains and losses on operating receivables and liabilities are rec- fair value through the income statement, which are reported at fair value excluding ognised as other operating revenues and other operating expenses, respectively, transaction costs. Accounts receivable and accounts payable have a short expect- in operating income, while gains and losses on financial assets and liabilities are rec- ed duration and are valued without discount at nominal value. ognised in net financial items. Financial Assets Valuated at fair value via the Income Statement REVENUES Assets in this category are measured continually at fair value with changes record- Revenues are reported at the actual values of what is received or will be received. ed in the income statement. Independent derivatives are classified as being held for Revenue from sale of products is recognised in the income statement when sig- trade except when they are used for hedge accounting. Derivatives are used to cov- nificant risks and benefits associated with the ownership of the goods have been er the risk for exchange-rate fluctuations and changes in interest rates. Derivatives transferred to the buyer, which normally occurs in connection with delivery. Reve- with positive values (unrealised gains) are recorded as other long-term or current nue recognition of services takes place as the services are carried out. Revenue and receivables. Changes in fair value are recognised in ‘Other operating income/Other costs from solutions in the form of construction contracts are reported as the pro- operating expenses in the income statement. ject progresses. This principle is referred to as percentage of completion. Revenue and costs are reported in the income statement in relation to the degree of com- Loan receivables and accounts receivable pletion on the balance sheet date. The degree of completion is established on the Loans receivable and accounts receivable are financial assets which are not deriva- basis of project costs spent in relation to the project cost corresponding to project tives, which have fixed payments or payments which are able to be determined, and revenue for the entire project. A precondition for percentage of completion is that which are not listed on an active market. These assets are measured at amortised the outcome can be determined reliably. Revenue is not reported if it is not proba- cost. The value is determined on the basis of the effective interest rate calculat- ble that the company will obtain the financial benefits. Anticipated losses are -ex ed at the time of the acquisition. Accounts receivable are reported at the amount pensed immediately. In the balance sheet, project work is reported either as a cur- expected to be received, i.e. after deductions for doubtful receivables. Impairment rent receivable concerning accrued project income not yet invoiced, or as a current of accounts receivable is reported in Other operating expenses. Testing for impair- liability concerning project work not yet performed but already invoiced. ment is performed individually.

RESTRUCTURING RESERVES/RESTRUCTURING COSTS Cash and cash equivalents The reserve for decided restructuring measures are posted when a detailed plan Cash and cash equivalents consist of cash at banks and other financial institutions. for the implementation of measures is in place, and when this plan is communicated to all those affected. Restructuring costs are posted as a separate item in the in- Financial liabilities valuated at fair value via the income statement come statement when these are attributable to a substantial change in the Group's This category comprises derivatives with a negative fair value not used for hedge structure. In other cases, the restructuring cases are posted as a part of other op- accounting. Changes in fair value are recognised in ‘Other operating income/Other erating revenues and operating expenses. operating expenses in the income statement.

FINANCIAL INCOME AND EXPENSES Other Financial Liabilities Financial income and expenses consist of interest income on bank deposits, in- Financial liabilities not held for trading, such as accounts payable and loans are rec- terest-bearing financial assets, interest expenses on loans, dividends received, ognised at amortised cost. Loans and other financial liabilities are reported initially exchange rate fluctuations on interest-bearing financial assets and liabilities and at the received loan amount with deductions for transaction costs. After the ac-

62 Consolidated financial statements

quisition date loans are assessed at the amortised cost using the effective interest TANGIBLE FIXED ASSETS rate method. Owned assets Tangible fixed assets are measured at cost less accumulated depreciation and any Hedge Accounting impairment. Cost includes the purchase price and costs directly attributable to the If the hedge accounting criteria are met, the effective portion of the change in fair asset in order to move it into place and in the proper condition to be used in accord- value of the derivative is reported in other comprehensive income and is accumu- ance with the purpose of the acquisition. The cost for self-produced fixed assets lated in the hedging reserve in equity. The accumulated profits or losses recognised includes expenditures for materials, expenditures for salaries and other remuner- in the hedging reserve are reversed to income in the same period as the hedged ation to employees, and if applicable other production costs considered to be di- cash flow affects income. Any ineffective part of the change in value is recognised rectly attributable to the fixed asset. The reported value of a tangible fixed asset is directly in income. If the hedging relationship is interrupted and cash flow is still ex- removed with its scrapping or sale or when no future financial benefits are expect- pected, the accumulated change in value is reported in the hedging reserve until ed from its use. A gain or loss arising from the sale or scrapping of an asset consists the cash flow attributable to the hedged item affects earnings. In the event that of the difference between selling price and the asset’s reported value with deduc- the forecast cash flow underpinning the hedge transaction is no longer expected tions for the directly attributable selling costs. Any gain or loss is reported as other to occur, the cumulative change in value recognised in the hedging reserve is trans- operating income/expense. ferred directly to earnings. Incremental Expenditures INTANGIBLE ASSETS Subsequent expenditures are added to the carrying amount only if it is likely that Goodwill the company will receive future financial benefits associated with the asset and the Goodwill is the amount by which the cost of an acquisition exceeds the fair value of cost of the assets can be calculated reliably. All other subsequent expenditures are the acquired identifiable assets, assumed liabilities and contingent liabilities. Good- expensed in the period they arise. Crucial for the assessment when a subsequent will is allocated to cash-generating units or groups of cash-generating units that expenditure is added to the carrying amount is if it concerns exchange of compo- are expected to benefit from synergies from the acquisition, and is tested for im- nents, or parts thereof, whereupon such expenditures are capitalised. Even in cas- pairment annually, and when there is an indication of reduction in value. Any impair- es when new components are constructed the expenditure is added to the carry- ment is not reversed. ing amount. Any remaining carrying amount of exchanged components, or parts of components, is expensed at the time of the exchange. Repairs are expensed as Research and Development they arise. Expenditures for development, where the research result or other knowledge is applied in order to produce new or improved products or processes, are reported Depreciation as an asset in the balance sheet, if the product or the process is technically and Depreciation occurs linearly over the asset’s anticipated useful life. The Group ap- commercially viable and the company has sufficient resources in order to proceed plies component depreciation, meaning that the components’ estimated useful life with development and thereafter use or sell the intangible asset. The reported val- forms the basis for the depreciation. ue includes expenditure for materials and other immediate expenses attributable to the asset in a reasonable and consistent manner. In the balance sheet, develop- The estimated useful life is: ment costs are reported at cost less accumulated amortisation and any impairment. - buildings, real estate used in business operations 15-30 years Costs for research aimed at acquiring new scientific or technical knowledge are re- - plant and machinery 3-8 years ported in the income statement as costs as they arise. - equipment, tools, fixtures and fittings 3–10 years - land not depreciated Trademarks with indeterminable lifetime Trademarks that are acquired via business acquisitions are recorded at fair val- Depreciation of components is based on each component’s estimated useful life. ue on the acquisition date. Trademarks with indeterminable lifetime are allocated The deprecation methods used and the residual value of assets and their useful life to cash-generating units or groups of cash-generating units that are expected to are reviewed annually. benefit from the trademark and are tested for impairment annually, and when there is an indication of reduction in value. LEASING Leasing is classified in the consolidated financial statements either as financial or Customer relations and trademarks with determinable lifetime operational leasing. Financial leasing occurs when the financial risks and benefits Customer relations that are acquired via business acquisitions are recorded at fair associated with the ownership are substantially transferred to the lessee. If this is value on the acquisition date. Trademarks with determinable lifetime are reported not the case, then it is classed as operational leasing. at acquired value less amortisation and any accumulated impairment. FINANCIAL LEASING AGREEMENTS Other intangible assets Leasing of fixed assets where the group essentially takes over the same risks and Other intangible assets are reported at cost less accumulated amortisation and im- benefits as direct ownership are classified as financial leasing. Assets that are hired pairment. under financial leasing agreements are recognised as assets in the consolidated balance sheet in the same way as owned assets. The obligation to pay future leas- Incremental Expenditures ing payments is recognized as long-term and current liabilities. Lease payments are Subsequent expenditures for capitalised intangible assets are reported as an as- allocated between interest expense and repayment of the outstanding debt. The set in the balance sheet only when they increase the future economic benefits for interest expense is amortised over the lease period so that each accounting period the specific assets to which they are related. All other expenditures are expensed includes an amount corresponding to a fixed interest rate for the respective period as they arise. of the liability. Variable fees are expensed in the period they are incurred.

Amortisation Operational Leasing Contracts Amortisation is recorded linearly in the income statement over the intangible as- Leasing of fixed assets where the risks and rewards relating to ownership remain sets’ expected useful life, if the useful life is not indefinite. with the lessor are classified as operational leasing. Costs for operational leasing are recognized in the income statement on a straight-line basis over the lease term. The expected useful life is: Benefits obtained from with the signing of an agreement are recognised as a part - Capitalised development expenditures 5 years of the total lease expense in the income statement on a straight-line basis over the - Computer software programs 3–5 years lease term. Variable fees are expensed in the period they are incurred. - Customer relations 10 years IMPAIRMENTS AND REVERSAL OF IMPAIRMENTS The amortisation methods used and the residual value of assets and their useful Impairments are charged to the income statement. The impairment of financial, life are reviewed annually. tangible and intangible fixed assets affects the operating profit. Previously recorded impairments are reversed if reasons for the former impairment no longer exist. However, reversals are not made in amounts exceeding the carrying amount that would have determined if no impairment had been recorded in previous years. Im- pairment of goodwill is not reversed.

63 Nederman’s 2017 Annual Report and Sustainability Report

Test of need for an impairment of tangible and intangible assets, and for The actuarial calculation is carried out by a registered actuary using the Project- shares in subsidiaries ed Unit Credit Method. The Group’s net obligations constitute the present value of The test of need for an impairment exists if any event occurs or if circumstances the obligations minus the fair value of the plan’s assets adjusted for any access re- change, indicating that the recorded value might be above the recoverable val- strictions. Net interest costs/income for the defined-benefit obligation/asset are ue. The test is carried out at the cash-generating unit to which the asset belongs reported under net financial items in the income statement. Net interest is based on cash-generating units consist of the Group’s operating segments. For goodwill, the interest that occurs upon discounting of the net obligation, i.e. interest on the other intangible assets with an indefinite useful life, and intangible assets not yet obligation, plan assets and interest on the effect of any access restrictions. Other ready for use, the recoverable value is calculated annually. An impairment is record- components are reported as operating profit. Restatement effects comprise actu- ed when an asset’s or cash-generating unit’s carrying amount exceeds the recov- arial gains and losses, the difference between actual returns on plan assets and the erable value. The recoverable value is the highest of the fair value less sales costs amount included in net interest and any changes in the effects of access restric- and estimated value in use. When calculating the estimated value in use, the future tions (excluding interest that was included in net interest). Restatement effects are cash flows are discounted at a rate considering risk-free interest rate and market reported in other comprehensive income. Changes or reductions in a defined-ben- risk premium associated with the specific asset. An impairment of assets belonging efit plan are reported at the earliest of the following dates: a) when the change or to a cash-generating unit is primarily allocated to goodwill. Then other assets are reduction in the plan occurs, or b) when the company reports related restructuring written down on a proportional basis. An impairment is reversed, with the excep- costs and remuneration upon termination of employment. Changes and reductions tion of impairment of goodwill, if there has been a positive change in the recover- are reported directly in profits. Payroll tax is a part of the actuarial assumption and able value. is therefore reported as part of the net obligation/asset. The portion of payroll tax calculated based on the Pension Obligations Vesting Act (Tryggandelagen) for a Test of the need for an impairment of financial assets legal entity is stated, for reasons of simplicity, as accrued costs instead of as part An impairment of a financial asset should happen if objective evidence shows that of the net obligation/asset. Tax on returns is reported in the income statement for one or more events have had a negative impact on the assets’ estimated future the period the tax refers to and is thus not included in the calculation of debt. For cash flows. An impairment of a financial asset valued at amortised cost is estimated schemes run as funds, tax is levied on returns for plan assets and this is reported in as the difference between its carrying amount and net present value of the esti- other comprehensive income. For schemes not run as funds or run partly as funds, mated future cash flows, discounted by the original effective interest rate. Previ- tax is included in profits for the year. If there is a difference between how pension ous impairments shall be reversed, if reasons for the former impairment no more costs are established for a legal entity and the Group, an allocation or a receivable is exist. reported concerning payroll tax based on this difference. The allocation or receivable is not calculated at present value. INVENTORY Inventories are measured at the lower of cost and net realisable value at the closing PROVISIONS date. The cost is calculated by applying the First In First Out method (FIFO), including A provision is recognised in the balance sheet when the Group has an existing legal expenses arising with the purchase of the inventory and the transportation to the or informal obligation as a result of an event that has occurred, and it is likely that current place and condition. Finished goods and work in progress, the acquisition an out-flow of financial resources will be required in order to meet the obligation cost includes a reasonable share of the indirect costs based on a normal capacity. and a reliable estimate of the amount can be made. Provisions are assessed at the Loan costs are not included. The net realisable value is calculated as the estimated end of every year. Provisions are divided between long-term and current provisions. selling price less applicable variable sales expenses. Provisions for guarantees DIVIDENDS A provision for a product guarantee is recorded when the underlying products or Dividends are reported as a liability after the Annual General Meeting has approved services are sold. Provisions are based on historical data about the guarantees and the dividend. a total appraisal of possible outcomes in relation to the probability of the outcome.

EARNINGS PER SHARE Provisions for restructuring and redundancy payments The calculation of earnings per share is based on the net result in the Group, attrib- A provision for restructuring is recorded when the Group has decided on a detailed utable to the parent company’s shareholders and on the weighted average number and formal restructuring plan, and the plan has been established and becomes pub- of shares outstanding during the year. lic. Provisions for restructuring often include redundancy payments, where the redundancy is either voluntary or involuntary. Redundancy payments are report- REMUNERATION TO EMPLOYEES ed according to the same principles as provisions for restructuring, except if there Short-term remunerations are requirements to work during a period of notice . The costs for this service is dis- Short-term remuneration to employees is reported as an expense when the relat- tributed over the period during which the services are performed. No provisions are ed services are received. A provision is reported for planned bonus payments when made for future operating costs. the Group has an obligation to make such payments based on services received or other contractual conditions fulfilled. TAXES Income taxes consist of current taxes and deferred taxes. Income taxes are report- Defined-contribution pension plans ed in the income statement except when the underlying transaction is reported Defined-contribution pension plans are plans where the company’s obligation is directly against equity or other comprehensive income whereupon the related tax limited to the charges the company has undertaken to pay. The size of the employ- effect also is reported in equity or other comprehensive income. Current taxes are ee’s pension depends on the fees paid by the company and the return on capital taxes that will be paid or are to be received for the current year, with the applica- generated by these fees. The company obligations concerning payments to de- tion of the tax rates that have been determined or announced as of the close of the fined-contribution pension plans are reported as an expense as they are earned. reporting period. Included here are also adjustments of current tax attributable to The part of the Swedish ITP plan financed through Alecta is a defined-benefit -pen earlier periods. A current tax liability or tax receivable is reported for the estimat- sion plan. Alecta has currently no possibility of providing the requisite information, ed tax that will be paid or received for the current year or previous years. Deferred which is why the aforementioned pension plan is reported as a defined-contribu- tax is calculated according to the balance sheet method based on the temporary tion pension plan, meaning that the premiums paid to Alecta will be reported in the difference between the tax-related values for assets and liabilities, and the values period they refer to. reported for the Group. Temporary differences that arise on initial recognition of an asset or liability, and which are not attributable to business acquisitions or oth- Defined-benefit pension plans er acquisition and have not affected reported or taxable earnings, do not entail a Defined-benefit pension plans are other plans for remunerating employees upon deferred tax asset or liability. Deferred tax is valued at the nominal amount with retirement than defined-contribution pension plans. The Group’s net obligation the application of the tax rates and tax regulations decided upon or announced on concerning defined-benefit pension plans are calculated separately for each plan the balance sheet date. Temporary differences are not recognised in participations by estimating the future remuneration, which each employee has earned via their in subsidiaries, since the Group can control the date when these temporary differ- employment in both the current and previous periods; this remuneration is then ences are reversed and it is unlikely that they will be reversed in the foreseeable discounted to a current value. Discount interest is the interest rate on the closing future. Temporary differences are not considered for goodwill. Deferred tax assets date for a first-class corporate bond or mortgage with a remaining maturity that pertaining to deductible temporary differences and losses carried forward are only corresponds to the Group’s obligations. If there is no effective market for corporate recorded to the degree that it is likely that these will be able to be used. The value of bonds, the market rate for government bonds over a corresponding period is used. deferred tax assets is reduced when it is deemed no longer to be likely they can be

64 Consolidated financial statements

used. Deferred tax assets and liabilities are offset where there is a legal offsetting 2 Allocation of sales right for the current tax assets and liabilities, and when the deferred taxes pertain to the same tax authority. Net sales, SEK m 2017 2016 Products 1,203.4 1,183.8 CONTINGENT LIABILITIES Solutions 1,325.5 1,358.2 A contingent liability is recorded when there are possible commitments arising from Service 619.6 565.3 events that have occurred and the liability is not reported, due to the unlikelihood 3,148.5 3,107.3 that an outflow of resources will be required.

PARENT COMPANY’S ACCOUNTING PRINCIPLES 3 Operating segments The parent company has prepared its financial statements according to the Swed- ish Annual Accounts Act (Arsredovisningslagen 1995:1554) and RFR 2. This means Segment reporting is based on reports submitted to the Group’s senior executives that the parent company’s financial reports must apply all EU-approved IFRS and in order to assess performance and allocation of resources to the segments. The statements to the extent that it is possible within the framework of the Swedish operating segments consist of different business operations that are affected by Annual Accounts Act and with regard to the connection between the accounting revenues and expenses. The segments are measured and consolidated according and taxation. The parent company applies the same accounting principles as the to the same accounting principles as the Group in total. The Group is a global mar- Group except in the instances stated below. The deviations that occur between the ket leader in producing products and systems within environmental technology. parent company’s and the Group’s principles are due to the limitations in the possi- The products and systems contribute to creating a clean and safe working environ- bilities to apply IFRS in the parent company pursuant to the Annual Accounts Act ment with focus on clean air, recycling solutions and reduced environmental impact and the Pensions Obligations Vesting Act. of transport handling.

Subsidiaries OPERATING SEGMENTS Shares in subsidiaries are reported in the parent company according to the pur- The Group is divided into the following operating segments: chase method. All expenses connected with business acquisitions, i.e. including - EMEA (Europe, Middle East and Africa) acquisition-related costs, are capitalised in the parent company’s financial state- - APAC (Asia and Oceania) ments as a part of the acquisition value for shares in subsidiaries. Dividend income is - Americas (North and South America) reported when there is a legal authority to receive the dividend. Received dividends are reported as income irrespective of whether the dividends are linked to profit The operating segments are presented on pages 22-33 of the annual report. The earned before the acquisition date. Shares in subsidiaries and assets at subsidiaries Group’s internal reporting system is built up in order to make it possible to follow up are tested yearly, and upon any indication of value , for impairment requirements. net sales, gross profit and variable costs per segment. Operating general expenses Any impairment is not reversed. are allocated to the operating segments as appropriate. Operating capital is reported separately when this is possible while other operating capital is allocated as suit- Scope able. Earnings, assets and liabilities for the segments include directly attributable The parent company’s revenue consists of intra-Group management fees. The in- items plus items that can be allocated to the segments in an appropriate way. An come statement reports this as net sales. item that is not allocated pertains mostly to expenses related to the parent company Nederman Holding AB, which contains the central main office functions, such Taxes as Group Management, Group Finance, Group IT, GroupHR and Corporate Develop- Untaxed reserves recorded in the parent company include deferred tax liabilities. In ment. Items not allocated also refer to financial income and expenses and tax ex- the consolidated financial statements untaxed reserves are allocated between de- penses. Assets and liabilities that have not been allocated between the segments ferred tax liability and shareholders’ equity. For the parent company no comparable include tax receivables and tax liabilities (current and deferred), financial invest- allocation is therefore made of appropriations as deferred tax expenses. ments and financial liabilities, including pension obligations. Operating assets are defined as total assets with deductions for liquid funds, tax receivables (current Group contributions and shareholder’s contributions for legal entities and deferred) and financial investments. Operating liabilities are defined as total Shareholders’ contributions are added to the value of shares in subsidiaries in the liabilities minus financial investments, tax liabilities (current and deferred) and fi- balance sheet and are then tested for impairment. Group contributions are booked nancial liabilities including pension obligations. The segment’s capital expenditures as an appropriation in the income statement. in tangible and intangible fixed assets include all capital expenditures except ex- pendable equipment, equipment of minor value and goodwill. No individual custom- Financial guarantees er accounts for 10 percent or more of the Group’s revenues. The parent company’s financial guarantee agreements mainly consist of guarantees benefiting subsidiaries. Financial guarantees mean that the company has GEOGRAPHIC AREAS an undertaking to remunerate the holder of a debt instrument for losses accrued The Group is divided into the following geographic regions: Sweden, rest of Nordic because a specific debtor has not completed payment on the due date according region, Germany, rest of Europe, North America and rest of the world. The infor- to the terms of the agreement. The parent company reports financial guarantee mation presented concerning the income for each region concerns the geographic agreements as a provision in the balance sheet when the company has a commit- areas, where the customers are located. Information concerning operating assets, ment for which payment is likely to be required to regulate the commitment. fixed assets excluding goodwill and capital expenditures for the period in tangible and intangible fixed assets, with the exception of goodwill, is based on geographic regions, where the assets are located. Fixed assets are defined as total assets minus goodwill, long-term receivables and deferred tax assets.

65 Nederman’s 2017 Annual Report and Sustainability Report

3 Operating segments, cont’d

OPERATING SEGMENTS Other - 2017, SEK m EMEA APAC Americas Not allocated Total Net sales 1,517.5 402.7 1,228.3 - 3,148.5 Adjusted operating profit per operating segment 205.9 9.3 136.9 -66.3 285.8 Acquisition costs - - - -7.7 -7.7 Operating profit/loss 205.9 9.3 136.9 -74.0 278.1 Financial income - - - 6.8 6.8 Financial expenses - - - -24.8 -24.8 Tax expenses - - - -73.8 -73.8 Net profit for the year 186.3

Operating assets 1,802.5 256.8 1,019.6 -550.4 2,528.5 Other assets - - - 442.4 442.4 Total assets 1,802.5 256.8 1,019.6 -108.0 2,970.9

Operating liabilities 411.4 193.0 374.0 -103.6 874.8 Other liabilities - - - 1,020.3 1,020.3 Total liabilities 411.4 193.0 374.0 916.7 1,895.1

Capital expenditures 14.5 0.8 7.8 30.3 53.4 Depreciation and amortisation -23.6 -3.5 -15.9 -9.7 -52.7

GEOGRAPHIC AREAS Rest of Rest of North Rest of 2017, SEK m Sweden Nordic region Germany Europe America the World Not allocated Total Net sales 134.0 221.7 287.0 762.6 1,126.9 616.3 - 3,148.5 Operating assets 653.9 461.1 355.1 332.4 979.7 296.7 -550.4 2,528.5 Capital expenditures 3.8 0.9 0.9 8.9 7.6 1.0 30.3 53.4 Fixed assets 23.8 110.9 44.1 51.5 160.3 23.1 65.5 479.2

OPERATING SEGMENTS Other - 2016, SEK m EMEA APAC Americas Not allocated Total Net sales 1,420.6 379.6 1,307.1 - 3,107.3 Adjusted operating profit per operating segment 168.1 -9.3 140.4 -48.9 250.3 Operating profit/loss 168.1 -9.3 140.4 -48.9 250.3 Financial income - - - 2.8 2.8 Financial expenses - - - -21.4 -21.4 Tax expenses - - - -59.6 -59.6 Net profit for the year 172.1

Operating assets 1,396.2 290.2 1,192.9 -649.0 2,230.3 Other assets - - - 423.1 423.1 Total assets 1,396.2 290.2 1,192.9 -225.9 2,653.4

Operating liabilities 394.8 215.9 452.6 -280.1 783.2 Other liabilities - - - 888.0 888.0 Total liabilities 394.8 215.9 452.6 607.9 1,671.2

Capital expenditures 9.1 1.1 9.1 26.6 45.9 Depreciation and amortisation -22.2 -4.7 -15.7 -5.1 -47.7

GEOGRAPHIC AREAS Rest of Rest of North Rest of 2016, SEK m Sweden Nordic region Germany Europe America the World Not allocated Total Net sales 134.5 214.4 290.6 695.6 1,140.1 632.1 - 3,107.3 Operating assets 696.5 26.6 335.7 337.5 1,170.3 312.7 -649.0 2,230.3 Capital expenditures 3.0 0.4 1.4 4.3 8.7 1.5 26.6 45.9 Fixed assets 27.8 1.7 45.6 45.1 185.0 26.5 51.1 382.8

66 Consolidated financial statements

4 Acquisition of business operations

ACQUISTION 2017

NEO Monitors AS On 7 November 2017, Nederman acquired 100 percent of the shares in NEO Monitors AS. NEO Monitors is a global pioneer within laser-based solutions for the measuring of gases and dust in all types of industry. The company has taken a leading position in all generations of laser-based measuring techniques and currently has the largest installed base of TDLS (Tunable Diode Laser Spectrometry) analysers with more than 11,000 instruments installed in more than 40 countries. The company’s expertise and technology allows for more than 100 different configurations customised to the needs to the customer, which helps global industries to achieve better process control, reduce operational -ex penses and increase efficiency. NEO Monitors becomes part of Nederman Insight. NEO Monitor’s trademark and team will continue as before. The solutions will be an integrated part of the Nederman Insight Applications and the digital eco system based on Connectivity and the Internet of Things. NEO Monitors AS has approximately 40 employees and in 2017 had sales of SEK 132.0 m.

The acquisition price amounts to SEK 407.5 m on a cash liability-free basis, financed through a combination of cash and existing bank facilities. The purchase sum is divided into two parts, of which the first part is SEK 256.1 m and paid upon transfer, and the second part two calendar years following the closing of the deal. The aquisition price of SEK 407.5m has been adjusted by SEK 4.0m due to adjusted calculation of net working capital, received in the beginning of 2018. The acquisition analysis is preliminary. Of total intangible fixed assets, SEK 84.2 m are related to research and development and SEK 22.1 m to customer relations. Fair value of trade receivables amounts to SEK 13.9 m. Fees relating to the acquisition amounted to SEK 7.7 m and comprise payments to consultants in connection with the transaction, which includes due diligence and legal advice. These fees affected operating profit.

Acquisition price, SEK m Acquisition price 407.5 Of which is deferred payment 155.5

Carrying amount upon the Adjustment to Fair value/ Identifiable acquired assets and liabilities, SEK m moment of acquisition fair value Total Intangible fixed assets 2.0 106.3 108.3 Tangible fixed assets 4.7 - 4.7 Inventories 29.5 - 29.5 Accounts receivable and other receivables 15.6 - 15.6 Cash and cash equivalents 22.8 - 22.8 Interest-bearing liabilities -15.8 - -15.8 Accounts payable and other operating liabilities -17.0 - -17.0 Current tax liabilities -2.3 - -2.3 Deferred tax liabilities 3.5 -25.5 -22.0 Total identifiable net assets 43.0 80.8 123.8 Goodwill 283.7 Total 407.5 Transferred remuneration -256.1 Acquired cash and cash equivalents 22.8 Effect on consolidated cash and cash equivalents -233.3

Net sales during holding time 28.2 Net sales 2017 before acquisition 103.8

Net profit during holding time 3.6 Net profit 2017 before acquisition 7.0

5 Other operating income

SEK m 2017 2016 Profit from sale of fixed assets 0.5 0.5 Recovered bad debt losses 1.3 0.9 Exchange gains on operating receivables/liabilities 1.9 13.9 Other 3.1 6.2 6.8 21.5

67 Nederman’s 2017 Annual Report and Sustainability Report

6 Other operating expenses

SEK m 2017 2016 Loss from sale of fixed assets -0.8 -0.1 Bad debt losses -3.2 -3.6 Exchange losses on operating receivables/liabilities -12.5 -4.5 Other -5.3 -9.1 -21.8 -17.3

7 Employees and Staff Expenses

2017 2016 Average number of employees Women Men Total Women Men Total Australia 3 17 20 2 18 20 Belgium 3 12 15 3 12 15 Brazil 5 18 23 6 18 24 Denmark 10 66 76 10 63 73 UK 12 87 99 12 79 91 France 8 18 26 20 26 46 India 1 28 29 1 17 18 Indonesia 2 8 10 1 8 9 Canada 7 21 28 7 23 30 China 35 112 147 35 113 148 Malaysia 1 5 6 1 5 6 Mexico 6 8 14 2 4 6 Netherlands 3 32 35 3 31 34 Norway 7 54 61 2 19 21 Poland 29 190 219 29 181 210 Russia 3 2 5 3 3 6 Spain 2 13 15 2 13 15 Sweden 59 148 207 66 174 240 Thailand 26 60 86 28 75 103 Czech Republic 2 16 18 2 15 17 Turkey 3 6 9 3 8 11 Germany 34 152 186 39 146 185 Hungary - 2 2 - 2 2 USA 111 306 417 110 316 426 Austria - 4 4 1 3 4 Group total 372 1,385 1,757 388 1,372 1,760 Of whom, senior executives 17 76 93 20 72 92

Gender breakdown of senior executives, percentage of women 2017 2016 Board of Directors 8% 4% Other senior executives 18% 22%

Expenses for remuneration to employees, SEK m 2017 2016 Salaries and other remuneration 766.3 739.1 Pensions expenses, defined-benefit plans (see also note 20) 0.4 - Pensions expenses, defined-contribution plans (see also note 20) 1) 43.9 39.3 Social security expenses 114.4 123.9 925.0 902.3

Salaries and other remuneration allocated between the board of directors and other employees, SEK m 2017 2016 Board of Directors, CEO and senior executives 62.1 56.0 (of which variable compensation) (5.8) (3.7) Other employees 704.2 683.1 766.3 739.1

1) Of the parent company’s pension costs SEK 1.4m (1.3) concern the Board of Directors and the CEO for the parent company. There are no outstanding pension obligations to the Group’s Board of Directors, CEO and senior executives.

68 Consolidated financial statements

8 Fees and expenses to auditors

SEK m 2017 2016 EY Audit assignment 5.1 5.3 Tax advice 0.3 0.3 Other assignments 0.4 0.5

Other auditors Audit assignment 0.6 0.6 Tax advice 1.8 0.4 Other assignments 1.7 0.2

Audit assignments refer to the statutory audit of annual and consolidated accounts, the administration of the board of directors and CEO, and auditing and other verifications as agreed. Other audit assignments include other duties incumbent on the company’s auditors and advice or other assistance required by the findings in the audit or performance of other tasks.

9 Operating expenses

SEK m 2017 2016 Cost of operations allocated on cost type Cost of material -1,434.8 -1,477.0 Cost of remuneration to staff -925.0 -902.3 Other external costs and other personnel costs -435.2 -434.2 Acquisition costs -7.7 - Depreciation and amortisation -52.7 -47.7 Other operating expenses -21.8 -17.3 -2,877.2 -2,878.5

10 Net financial items

SEK m 2017 2016 Financial income Interest income on bank deposits 2.5 2.2 Other interest income 0.4 0.6 Exchange rate changes 3.9 - 6.8 2.8

Financial expenses Interest expenses, credit institutions -18.1 -15.1 Interest expenses, other -4.0 -4.3 Exchange rate changes -2.7 -2.0 -24.8 -21.4 Net financial items -18.0 -18.6

All interest income/expense derived from financial assets and liabilities which are measured at amortised cost.

69 Nederman’s 2017 Annual Report and Sustainability Report

11 Taxes

REPORTED IN THE CONSOLIDATED INCOME STATEMENT, SEK m Current tax expense (-) 2017 2016 Tax expense for the period -56,3 -51.0 Adjustment of tax relating to previous years 1.0 -1.3 -55.3 -52.3 Deferred tax expense (–) /tax income (+) Deferred tax concerning temporary differences 1.4 10.7 Utilisation of previously activated loss carryforwards -14.9 -15.5 Revaluation of loss carryforwards -6.1 -5.4 Deferred tax income in tax loss carryforwards capitalised during the year 1.1 2.9 -18.5 -7.3 Total consolidated tax expenses -73.8 -59.6

Reconciliation of effective tax The Swedish tax rate is 22 percent. The primary reasons for the difference in tax rate between Swedish income tax and the Group's tax rate based on the earnings after financial items are indicated in the table below.

2017, % 2017, SEK m 2016, % 2016, SEK m Profit before tax 260.1 231.7 Tax according to the applicable tax rate for the Parent company 22.0 -57.2 22.0 -51.1 Effect of other tax rates for foreign subsidiaries 9.1 -23.7 5.7 -13.2 Non-tax deductible expenses 3.7 -9.5 3.3 -7.6 Non-taxable income -1.4 3.7 -3.5 8.0 Increase of loss carryforwards without corresponding capitalisation of deferred tax/temporary differences 2.3 -6.0 0.9 -2.0 Utilisation or revaluation of previously non-capitalised losses carried forward -6.9 18.0 -4.2 9.8 Tax relating to previous years -0.2 0.5 0.6 -1.4 Effect of changes in tax rates/ and tax rules -0.2 0.4 0.9 -2.1 Reported effective tax 28.4 -73.8 25.7 -59.6

Current tax assets amount to SEK 61.3 m (71.5) and representing the recoverable amount of current tax on the result for the year.

REPORTED IN CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2017 2016 Deferred tax assets and deferred tax liabilities, SEK m Receivables Liabilities Net Receivables Liabilities Net Deferred tax assets and deferred tax liabilities relate to: Tangible fixed assets 26.8 28.8 -2.0 27.0 36.8 -9.8 Intangible fixed assets 6.2 45.0 -38.8 6.3 23.1 -16.8 Financial assets 0.7 0.2 0.5 0.6 - 0.6 Inventories 11.4 1.2 10.2 10.4 1.1 9.3 Accounts receivable 2.4 4.1 -1.7 2.2 1.1 1.1 Provision for pensions 16.8 0.2 16.6 14.6 - 14.6 Provisions 7.6 - 7.6 14.0 - 14.0 Loss carryforwards 4.5 - 4.5 24.3 - 24.3 Other 2.9 - 2.9 2.5 - 2.5 Tax receivables/liabilities 79.3 79.5 -0.2 101.9 62.1 39.8 Netting -62.5 -62.5 - -41.2 -41.2 - Deferred tax assets/liabilities according to consolidated statement of 16.8 17.0 -0.2 60.7 20.9 39.8 financial position

Recognised loss carryforwards are not time limited except for losses in China, amounting to SEK 1.7 m that is valid until 2019. Deferred tax receivables have been reported to the extent that it is considered probable that the losses can be set off against future profits.

Deferred tax assets and liabilities are offset where there is a legal offsetting right for the current tax assets and liabilities, and when the deferred taxes pertain to the same tax authority.

70 Consolidated financial statements

11 Taxes, cont’d

UNRECOGNISED TAX LOSS CARRYFORWARDS Deductible temporary differences and loss carryforwards for which deferred tax assets have not been reported in the consolidated statement of financial position. SEK m 2017 2016 Unrecognised tax loss carryforwards 178.2 168.9

Tax loss carryforwards of SEK 172,8 m, which represent SEK 43.0 m in defered tax assets have not been reported in the consolidated financial statement. Those mainly relate to loss carryforwards in France, the Netherlands, Thailand, Turkey, Germany and the US, which will probably not be used for settlement of future taxable gains. The majority of the nrecognised tax loss carryforwards have a time limit of 2021/2022 and the remaining portion is mainly not time -limited.

CHANGE IN DEFERRED TAX IN TEMPORARY DIFFERENCES AND LOSSES CARRIED FORWARD Balance Recorded Balance As of Over Trans As of 31 1 Jan income lation Acquisitions Dec SEK m 2017 statement difference of business 2017 Tangible fixed assets -9.8 8.0 -0.1 -0.1 -2.0 Intangible fixed assets -16.8 3.0 0.5 -25.5 -38.8 Financial assets 0.6 -0.2 0.1 - 0.5 Inventories 9.3 0.9 -0.0 - 10.2 Accounts receivable 1.1 -3.3 0.0 0.5 -1.7 Provision for pensions 14.6 -1.2 0.1 3.1 16.6 Provisions 14.0 -6.4 0.0 - 7.6 Loss carryforwards 24.3 -19.9 0.1 - 4.5 Other 2.5 0.6 -0.2 0.0 2.9 39.8 -18.5 0.5 -22.0 -0.2

Balance Recorded Balance As of Over Trans As of 31 1 Jan income lation Acquisitions Dec SEK m 2016 statement difference of business 2016 Tangible fixed assets -10.1 0.3 -0.0 - -9.8 Intangible fixed assets -15.3 -1.7 0.2 - -16.8 Financial assets 0.6 0.0 -0.0 - 0.6 Inventories 7.3 2.2 -0.2 - 9.3 Accounts receivable -2.2 3.8 -0.5 - 1.1 Provision for pensions 7.2 8.3 -0.9 - 14.6 Provisions 16.4 -2.7 0.3 - 14.0 Loss carryforwards 40.5 -18.0 1.8 - 24.3 Other 2.1 0.5 -0.1 - 2.5 46.5 -7.3 0.6 - 39.8

71 Nederman’s 2017 Annual Report and Sustainability Report

12 Intangible fixed assets

2017 Customer Trade Development Computer SEK m relations marks in progress Goodwill programs Total Accumulated cost Opening balance 22.6 47.4 123.5 708.8 96.5 998.8 Business acquisition 22.1 - 84.2 283.7 5.7 395.7 Internally developed assets - - 6.8 - - 6.8 Other capital expenditures - - - - 23.3 23.3 Sold and scrapped - - - - -0.4 -0.4 Translation differences -2.1 -3.3 -1.8 -22.6 0.5 -29.3 Closing balance 42.6 44.1 212.7 969.9 125.6 1,394.9

Accumulated amortisation and impairment Opening balance -7.2 - -98.3 - -65.5 -171.0 Business acquisition - - - - -3.7 -3.7 Sold and scrapped - - - - 0.2 0.2 Amortisation for the year -2.6 - -8.9 - -12.2 -23.7 Translation differences 0.6 - -0.2 - -0.4 0.0 Closing balance -9.2 - -107.4 - -81.6 -198.2

Carrying amount Opening balance 15.4 47.4 25.2 708.8 31.0 827.8 Closing balance 33.4 44.1 105.3 969.9 44.0 1,196.7

2016 Customer Trade Development Computer relations marks in progress Goodwill programs Total Accumulated cost Opening balance 18.9 43.8 115.1 688.6 76.2 942.6 Business acquisition 2.0 - - -7.5 - -5.5 Internally developed assets - - 6.7 - - 6.7 Other capital expenditures - - - - 19.4 19.4 Reclassifications - - - - -0.0 -0.0 Translation differences 1.7 3.6 1.7 27.7 0.9 35.6 Closing balance 22.6 47.4 123.5 708.8 96.5 998.8

Accumulated amortisation and impairment Opening balance -4.6 - -89.4 - -57.6 -151.6 Amortisation for the year -2.1 - -7.4 - -7.0 -16.5 Translation differences -0.5 - -1.5 - -0.9 -2.9 Closing balance -7.2 - -98.3 - -65.5 -171.0

Carrying amount Opening balance 14.3 43.8 25.7 688.6 18.6 791.0 Closing balance 15.4 47.4 25.2 708.8 31.0 827.8

The Group’s expenses for development of the existing product range and new products amounted to SEK 14.2 m (7.8). SEK 6.8 m was capitalised in the consolidated statement of financial position.

72 Consolidated financial statements

12 Intangible fixed assets, cont'd

Amortisation and impairments, SEK m 2017 2016 Amortisation is included in the following lines in the income statement Cost of sold goods -9.0 -7.4 Selling expenses -5.0 -4.7 Administrative expenses -9.7 -4.4 -23.7 -16.5

The amount of goodwill represents the future economic benefits arising from the acquisition that are not individually identified and separately recognised and the value being established on the market with a functioning market organisation. The goodwill is split per operating segment.

Goodwill, SEK m 2017 2016 EMEA 676.1 404.0 APAC 41.0 42.5 Americas 252.8 262.3 969.9 708.8

Annual growth during the Annual growth Cash generating forecast after forecast Discount unit period, % period, % rate before tax, % EMEA 2.0 (1.0) 1.0 (1.0) 12.63 (12.67) APAC 6.0 (6.0) 3.0 (3.0) 13.57 (10.38) Americas 2.0 (3.0) 2.0 (2.0) 16.44 (15.21)

Trademarks 2.0 (2.0) 2.0 (2.0) 14.10 (12.75)

IMPAIRMENT TESTS FOR CASH-GENERATING UNITS CONTAINING GOODWILL AND TRADEMARKS WITH INDETERMINABLE LIFETIME

GOODWILL TRADEMARKS Goodwill is tested annually for impairment, or more frequently if there are indica- In addition to goodwill there are acquired trademarks which are considered to tions of a reduction in value. The test is based on defined cash-generating units, have an indefinite useful life. The useful life is deemed indefinite if it is a ques- which are the same as the operating segment and the values are based on dis- tion of a well-established brand in its market, which the Group intends to maintain counted cash flows. The recoverable amounts have been determined on the basis and develop further. The brands that have been identified and valued were estab- of calculations of value in use. These calculations are based on projected cash flows lished in connection with the 2012 acquisition of EFT. The cost of the trademarks by the management for a period of five years. The growth for the cash-generating was established at the time of the acquisition under the so-called relief from roy- units is based on historical growth, estimated market growth and expected price alty method. Impairment testing is performed annually. The test includes an as- development. The forecasts reflect previous experience and external sources of sessment of the royalty rate on the acquisition date fixed and estimated future information. Assumed growth is based on a cautious assumption and does not ex- sales performance for five years. Sustained growth of 2 percent has been used. ceed the long-term growth of the industry as a whole. Cash flow for the period beyond five years has been calculated using a multiple applied to estimated sustainable cash flow. When calculating the present value of Sensitivity analysis: expected future cash flows, the current weighted average capital cost (WACC) for Sensitivity in all calculations means that the goodwill value will be defended even the market is used. For 2017, the discount rate amounts to 14.10 percent (12.75). if the discount rate is raised by one percentage point or if long-term growth would Impairment testing is done in Q4, or whenever the need arises, and with the as- fall by a percentage point. The annual test of goodwill did not reveal an impairment sumptions used showed there was no need for any impairment of trademarks requirement. Upon a sensitivity analysis, all operating segments show that no rea- with an indefinite useful life. The book value of trademarks with an indefinite use- sonable changes in important assumptions lead to a impairment requirement. The ful life amounted to SEK 44.1 m (47.5). senior executives are of the opinion however that no reasonable changes in important assumptions at the impairment test of the cash-generating units will result in a recoverable value lower than the carrying amount.

73 Nederman’s 2017 Annual Report and Sustainability Report

13 Tangible fixed assets

2017 Buildings Plant Equipment, and and tools and SEK m Land machinery fixtures Total Accumulated cost Opening balance 380.8 203.2 305.3 889.3 Business acquisition - 2.0 3.7 5.7 Year’s capital expenditure 5.7 8.4 9.2 23.3 Sold and scrapped -1.3 -5.6 -7.8 -14.7 Reclassifications -0.5 -0.4 1.2 0.3 Translation differences -5.0 -5.9 -2.0 -12.9 Closing balance 379.7 201.7 309.6 891.0

Accumulated depreciation and impairment Opening balance -202.6 -150.0 -272.9 -625.5 Business acquisition - -0.4 -0.6 -1.0 Depreciation for the year -9.1 -9.6 -10.3 -29.0 Sold and scrapped 1.2 4.5 6.9 12.6 Reclassifications - 0.4 -0.0 0.4 Translation differences 0.3 2.5 1.1 3.9 Closing balance -210.2 -152.6 -275.8 -638.6

Carrying amount Opening balance 178.2 53.2 32.4 263.8 Closing balance 169.5 49.1 33.8 252.4

2016 Buildings Plant Equipment, and and tools and Land machinery fixtures Total Accumulated cost Opening balance 358.2 201.2 304.7 864.1 Year’s capital expenditure 6.5 5.7 7.6 19.8 Sold and scrapped - -15.2 -12.5 -27.7 Reclassifications -2.3 0.5 0.0 -1.8 Translation differences 18.4 11.0 5.5 34.9 Closing balance 380.8 203.2 305.3 889.3

Accumulated depreciation and impairment Opening balance -185.3 -146.6 -269.4 -601.3 Depreciation for the year -9.2 -10.6 -11.4 -31.2 Sold and scrapped - 14.3 11.7 26.0 Reclassifications - 0.0 0.0 0.0 Translation differences -8.1 -7.1 -3.8 -19.0 Closing balance -202.6 -150.0 -272.9 -625.5

Carrying amount Opening balance 172.9 54.6 35.3 262.8 Closing balance 178.2 53.2 32.4 263.8

Financial leasing, SEK m 2017 2016 Book value for assets during leasing agreement Equipment, tools and fittings 0.4 0.5

The leased assets are pledged assets for the leasing liabilities. See also note 19 and 26.

Depreciation and impairments, SEK m 2017 2016 Depreciation is included in the following lines in the income statement: Cost of sold goods -17.8 -18.9 Selling expenses -7.2 -8.3 Administrative expenses -4.0 -4.0 -29.0 -31.2

74 Consolidated financial statements

14 Other receivables

Other receivables which are current assets, SEK m 2017 2016 VAT receivable 15.2 12.3 Project work in progress, not invoiced 88.5 163.4 Fair value of currency derivatives 0.2 0.7 Other receivables 35.5 26.7 139.4 203.1

15 Inventory

SEK m 2017 2016 Raw materials and consumables 177.7 149.8 Work in progress 75.4 104.6 Finished goods and tradable goods 133.7 126.2 386.8 380.6

Impairment of inventory value reported gross 80.3 88.1

Change of obsolescence provision, SEK m 2017 2016 Opening balance 88.1 85.1 Change in obsolescence reported over the income statement 1.5 7.0 Disposals -7.7 -5.8 Reclassifications -0.1 -0.4 Effect of changes in currency exchange rates -1.5 2.2 Obsolescence provision at 31 December 80.3 88.1

16 Prepaid expenses and accrued income

SEK m 2017 2016 Rent/leasing 5.0 5.5 Computer/license costs 4.5 3.8 Insurance 2.8 1.7 Bank costs 1.1 1.2 Other 8.3 15.3 21.7 27.5

75 Nederman’s 2017 Annual Report and Sustainability Report

17 Equity

Share capital and number of shares 2017 2016 Number of shares 11,715,340 11,715,340 Registered share capital, SEK 1,171,534 1,171,534

Share ratio value is SEK 0.10.

Number of treasury shares held 2017 2016 Opening number of treasury shares held 23,371 34,000 Effect of share-related remunerations -4,282 -10,629 Closing number of treasury shares held 19,089 23,371

Dividends The Board of Directors and the CEO propose a dividend of SEK 6.00 (5.50) per share, in total SEK 70.2 *)m (64.3). The dividend amount will be adopted by the AGM on 19 April 2018.

*) Based on the number of shares outstanding on 31 December 2017. The dividend amount may be subject to change as treasury shares may be sold up to the record day of 13 April 2018.

Hedging reserve, SEK m 2017 2016 Cash flow hedging Value at the beginning of the year -1.1 1.1 Changes in fair value of cash flow hedges 3.1 -1.5 Transferred to income statement for the period 0.0 -1.3 Tax relating to cash flow hedges -0.7 0.6 Value at the end of the period 1.3 -1.1

Capital management The Group’s capital corresponds to the total amount of shareholders’ equity, SEK 1,075.8 SEK m. According to the Board’s policy, the Group’s financial objective is to achieve a good capital structure and financial stability in order to maintain the trust of investors, creditors and the market, and to form a good base for continued development of the business, while the long-term return generated for shareholders remains satisfactory.

Capital defined as total equity, SEK m 2017 2016 Total equity 1,075.8 982.2

Net debt/equity ratio, % 2017 2016 Interest-bearing liabilities and provisions 946.2 812.1 Cash and cash equivalents -360.9 -287.8 Net debt 585.3 524.3

Net debt/equity ratio, % 54.4 53.4

The net debt/equity ratio is at the level of the previous year, which is due to the net debt and equity having increased to roughly the same scope. The increase of the net debt is due primarily to the year’s borrowings in connection with the acquisition of NEO Monitors. The net debt has also been affected positively by currency effects on the external loans in Euros and Dollars. The enhanced cash flow during the year as resulted in a lower net debt, which above all is attributable to a reduced operating capital requirement for projects in progress. Equity was strengthened due to by the improved profitability. This is in spite of equity having been affected negatively by the foreign exchange provision, which is mainly related to the Dollar and Euro. These effects have meant that the net debt/equity ratio was at the same level as the previous year and good access to liquidity provides an opportunity to take advantage of the growth prospects anticipated in coming years, while the level of the ordinary dividend is expected to be maintained. New share issues will probably not be needed for the same reason in coming years, except in the event of major acquisitions.

The Group seeks to pay an ordinary dividend each year amounting to 30-50 percent of net income. The Board has proposed a dividend of SEK 6.00 per share to the Annual Gen- eral Meeting in 2018, representing 6.5 percent of the equity. In the past five years, the ordinary dividend has averaged around 6.8 percent of equity. This has meant that 46 percent of earnings per share has been distributed in ordinary dividends.

During the year there were no changes in the Group ’s capital management.

18 Earnings per share

Earnings per share, SEK 2017 2016 Earnings per share before dilution 15.93 14.72 Earnings per share after dilution 15.93 14.72

Net profit for the year, SEK m 2017 2016 Year’s earnings attributable to the parent company’s shareholders 186.3 172.1

76 Consolidated financial statements

18 Earnings per share, cont’d

Weighted average number of shares outstanding 2017 2016 Issued number of shares as of 31 December 11,715,340 11,715,340 Weighted average number of shares prior to dilution 11,696,251 11,691,969 Weighted average number of shares after dilution 11,696,251 11,691,969

Number of treasury shares held 2017 2016 Opening number of treasury shares held 23,371 34,000 Effect of share-related remunerations -4,282 -10,629 Closing number of treasury shares held 19,089 23,371

19 Interest-bearing liabilities

For more information about the company’s exposure to interest rate risks and currency risks, see note 24.

Long-term liabilities, SEK m 2017 2016 Bank loans 822.2 702.2 Financial leasing liabilities 0.3 0.2 822.5 702.4

Current liabilities, SEK m 2017 2016 Current part of bank loan 0.2 0.2 Current part of financial leasing liabilities 0.1 0.3 0.3 0.5

Total interest-bearing liabilities 822.8 702.9

Terms and repayment due dates For terms and repayments due dates see the table below. No security for the bank loans has been provided.

Nominal Nominal amount Recorded 2017, SEK m Currency interest% Due date original currency amount Bank loan (revolving) SEK 0.750 01.06.2019 110.8 110.0 Bank loan (revolving) SEK 0.750 01.06.2019 14.0 14.0 Bank loan (revolving) SEK 0.900 28.12.2020 58.0 57.5 Bank loan (revolving) EUR 0.900 28.12.2020 17.2 169.3 Bank loan (revolving) USD 2.469 28.12.2020 36.5 300.3 Bank loan (revolving) USD 2.130 01.06.2019 2.6 21.3 Bank loan (revolving) SEK 0.750 01.06.2019 150.0 150.0 Financial leasing liabilities 0.4 Total interest bearing liabilities 822.8

Nominal Nominal amount Recorded 2016, SEK m Currency interest% Due date original currency amount Bank loan (revolving) SEK 0.950 01.06.2019 110.8 110.0 Bank loan (revolving) SEK 0.950 01.06.2019 14.0 14.0 Bank loan (revolving) SEK 1.050 28.12.2020 58.0 57.5 Bank loan (revolving) EUR 1.050 28.12.2020 17.2 164.7 Bank loan (revolving) USD 1.885 01.06.2019 2.6 23.8 Bank loan (revolving) USD 1.820 28.12.2020 36.5 332.4 Financial leasing liabilities 0.5 Total interest bearing liabilities 702.9

77 Nederman’s 2017 Annual Report and Sustainability Report

19 Interest-bearing liabilities, cont’d

Financial leasing liabilities Financial leasing liabilities are due for payment according to the following:

Minimum leasing Capital 2017, SEK m Fees Interest amounts Within one year 0.2 -0.0 0.2 Between one and five years 0.2 0.0 0.2 0.4 -0.0 0.4

Minimum leasing Capital 2016, SEK m Fees Interest amounts Within one year 0.3 -0.0 0.3 Between one and five years 0.2 -0.0 0.2 0.5 -0.0 0.5

20 Provision for pensions – benefits to senior executives

Defined-benefit pension plans Defined-benefit net liability, reported in statement of financial position, SEK m 2017 2016 Present value of unfunded obligations 123.4 109.2 Present value of entirely or partially funded obligations 0.5 0.6 Total present value of defined-benefit obligations 123.9 109.8 Fair value of plan assets -0.5 -0.6 123.4 109.2

Overview, defined-benefit plans The Group has defined-benefit plans that pay remuneration in the form of old-age pensions and remuneration for healthcare costs to employees when they retire in Sweden, Germany, USA, France, Poland, Thailand and Norway. Costs for service during the current period are posted directly to the income statement. However, most are closed obligations where no additional benefits are earned. Defined-benefit plans are exposed to actuarial risks such as length of life, currency, interest and investment risks.

Change in present value of defined-benefit obligations, SEK m 2017 2016 Obligations for defined benefit plans, 1 January 109.8 108.3 Business acquisition 15.3 - Payment of pension benefits -6.5 -6.6 Reductions and settlements - 0.5 Cost of service in current period 0.4 0.0 Interest cost 2.5 2.7 Revaluations - Actuarial gains and losses for the revised demographic assumptions -1.4 -1.0 - Actuarial gains and losses for changes in financial assumptions 3.6 2.8 Translation differences 0.2 3.1 Obligations for defined benefit plans, 31 December 123.9 109.8

Changes in fair value of defined-benefit plan assets, SEK m 2017 2016 Fair value of plan assets, 1 January 0.5 0.6 Payment of pension benefits -0.0 -0.1 Fair value of plan assets, 31 December 0.5 0.5

Costs reported in profit for the year, SEK m 2017 2016 Costs for service in current period 0.4 0.0 Net interest 2.5 2.8 Total net costs in the income statement 2.9 2.8 of which, amounts affecting operating profit 0.4 - of which, amounts affecting financial costs 2.5 2.8 Total net costs 2.9 2.8

Costs recognised in other comprehensive income, SEK m 2017 2016 Revaluations of pension commitments -2.2 -1.8 Translation differences on foreign plans -1.1 -0.5 Revaluation of defined-benefit net liabilities in other comprehensive profits -3.3 -2.3

78 Consolidated financial statements

20 Provision for pensions – benefits to senior executives, cont’d

Assumptions for defined-benefit obligations, % 2017 2016 The most significant actuarial assumptions on the balance sheet date (expressed as weighted averages) Discount rate at 31 December 1.7-2.9 1.8-2.9 Future increase in medical expenses -5.0 -5.0 Future pension increases 1.5-1.7 1.5

Sensitivity analysis The following table presents possible changes in actuarial assumptions on the closing date, with the other assumptions unchanged, and how these would impact on the defined-benefit obligation.

SEK m Increase Decrease Increase/decrease in discount rate (0.5% change) -11.3 12.9 Increase / decrease in health care costs (1% change) 0.4 -0.3

Future cash flow Notice period for termination of employment and severance pay As of 31/12/2017 the weighted average duration of commitments was 14.0 years For a notice of resignation from the CEO, an advance notice of 6 months is required. (14.0). Expected payments in 2018 for defined-benefit pension plans amount to With notice of termination of employment on the part of the company, the CEO SEK 10.9m. has the right to a payment corresponding to 18–24 monthly salaries. The six last months with a reservation regarding new employment. Pension plans covering several employers Obligations for old-age pensions and family pensions for employees in Sweden Pension payments are safeguarded via insurance in Alecta. According to a statement from the Swed- The CEO and Group CEO is entitled to retire with a pension at age 65. The pension ish Financial Accounting Standards Council, UFR 10, this is a defined-benefit plan plan is premium-based pension plan and the annual premium corresponds to 35 that covers multiple employers. For the financial year 2017 the company has not percent of the annual base salary. The company’s obligation is limited to the pay- had access to such information which makes it possible to report this plan as a de- ment of the annual premium. During 2017 the premium expenses were SEK 1,392t fined-benefit plan. The pension plan according to ITP which is safeguarded via infor the CEO and Group CEO. surance in Alecta is therefore reported as a defined-contribution pension plan. The annual charges for retirement annuities which are covered by Alecta amounts to Principles for compensation to managers at subsidiaries SEK 6.6m (5.8). Alecta’s surplus can be distributed to the holders of the insurance Managing Directors at subsidiaries have termination of employment contracts with policies and/or the ensured parties. The Group's share of total savings premiums 6-12 months’ salary. for ITP in Alecta amounted to 0.038 percent (0.035) and the Group's share of the total number of active insured individuals amounts to 0.028 percent (0.029). At Principles for remuneration to other senior executives the end of 2017, Alecta’s surpluses, in the form of the collective consolidation level, Remuneration amounted to 154 percent (148). The collective consolidation level consists of the Those members in the Group management, who are employed by companies other market value of Alecta’s assets as a percentage of the insurance obligations calcu- than the parent company, receive their remuneration from the respective compa- lated according to Alecta’s actuarial assumptions, which are not in accordance with ny. The remuneration is determined by the remuneration committee in accordance IAS 19. with principles determined by the 2017 AGM and consists of base salary, pension contribution, variable compensation and other benefits. For other members in the DEFINED-CONTRIBUTION PLANS group management the variable compensation may amount to no more than 30 In Sweden the Group has defined-contribution pension plans paid in full by the com- percent of the base salary. Any variable compensation and its size is determined by panies. Outside of Sweden, there are defined-contribution plans, which are paid for the CEO in consultation with the Chairman of the board, based upon the result and partly by the subsidiaries, and partly by payment from the employees. Payments tied-up capital in the Nederman Group. In 2017, remuneration to the rest of the sen- into these plans are continual in accordance with the rules for each plan. ior executives was SEK 20,821t, of which SEK 3,146t consisted of variable remunerations and SEK 3,435t of pension premium expenses. SEK m 2017 2016 Costs for defined-contribution pension plans 43.0 39.3 Notice period for termination of employment and severance pay Other members in the group management have a twelve-month notice period BENEFITS TO EXECUTIVE OFFICERS for termination of employment if it is initiated on the part of the company, and six Principles for compensation to the board of directors months if they give notice. During the period of notice, other members in the group Directors’ fees are paid to the Chairman of the board of directors and other mem- management are entitled to full salary and other employment benefits. None of the bers according to the decision of the Annual General Meeting. Employee represent- other members of the group management are entitled to severance pay. atives in the board of directors do not receive director’s fees. The 2017 Annual Gen- eral Meeting decided that fees to the board for its work in 2017 would amount to Pension payments SEK 450,000 to the chairman of the board and SEK 225,000 to Per Borgvall, Gun- Other members of the group management are entitled to retire with a pension at nar Gremlin, Ylva op den Velde Hammargren, Johan Menckel and Gunilla Fransson. age 65. The pension contributions follow the contractual ITP with exception for two members where the pension contribution occurs with 8 price base amounts per year respectively at the most 30 percent of base salary. The companies’ obli- Principles for compensation to CEO and group president gations are limited to the annual premiums. The pension-based salary consists of Remuneration the fixed annual salary plus the average variable compensations during the previ- Compensation is paid to the CEO and Group CEO in the form of a base salary, ous three years. pensions and variable compensation. During 2017, the base salary was SEK 4,112t. The variable compensation can amount to at most 50 percent of the base salary. Any variable compensation is established on the basis of the Nederman Group’s earnings per share. In 2017, remuneration to the CEO and Group CEO was SEK 7,568t, of which 1,921t consisted of variable remunerations and SEK 1,392t of pension premium expenses.

79 Nederman’s 2017 Annual Report and Sustainability Report

20 Provision for pensions – benefits to senior executives, cont’d

Compensation and other benefits during 2017 Basic salary board Variable Other Pension SEK t fees remuneration LTI benefits expenses Total Chairman of the board Jan Svensson 450 - - - - 450 Member of the board Per Borgvall 225 - - - - 225 Member of the board Gunnar Gremlin 225 - - - - 225 Board member Ylva op den Velde Hammargren 225 - - - - 225 Board member Johan Menckel 225 - - - - 225 Board member Gunilla Fransson 225 - - - - 225 CEO Sven Kristensson 4,112 1,921 - 143 1,392 7,568 Other senior executives (8 individuals) 12,915 3,146 - 1,325 3,435 20,821 Total 18,602 5,067 - 1,468 4,827 29,964 of which subsidiaries (4 individuals) 7,260 1,638 - 979 1,785 11,662

Compensation and other benefits during 2016 Basic salary board Variable Share saving Other Pension SEK t fees remuneration programme/LTI benefits expenses Total Chairman of the board Jan Svensson 450 - - - - 450 Member of the board Per Borgvall 225 - - - - 225 Member of the board Fabian Hielte 225 - - - - 225 Member of the board Gunnar Gremlin 225 - - - - 225 Board member Ylva op den Velde Hammargren 225 - - - - 225 Board member Johan Menckel 225 - - - - 225 Board member Gunilla Fransson 90 - - - - 90 CEO Sven Kristensson 4,074 897 708 134 1,342 7,155 Other senior executives (7 individuals) 13,585 271 279* 850 2,917 17,902 Total 19,324 1,168 987 984 4,259 26,722 of which subsidiaries (4 individuals) 7,278 50 23* 578 1,788 9,717

*) Remunerations include reversals of costs taken in 2015 with regard to executives that have left their employment in 2016.

LTI (LONG TERM INCENTIVE) The Annual General Meeting held on 19 April 2017 approved the Board's proposal that the annual programmes for variable remuneration shall be able to be supplemented by a programme for long-term bonuses (LTI). Consequently, the 2017-2018 LTI programme has been established for a period of two years and is targeted in a way that makes it particularly favourable for the company’s shareholders. The result of the LTI programme for the senior executives (net after income tax), shall be reinvested in share warrants in Nederman or in Nederman shares. Share warrants require the approval upon a relevant future AGM at Nederman. The reinvested shares and warrants are expected to be maintained by the senior executive during his time of employment, but at least three years. The 2017-2018 LTI programme covers two years and can be a maximum of 35 percent of an annual salary for the CEO, and 20 percent of an annual salary for other senior executives.

24 Provisions

Provisions that are long-term liabilities, SEK m 2017 2016 Restructuring /severance pay 0.4 - Guaranty commitments 5.8 6.1 Loss contract 2.4 - Other 0.9 0.4 9.5 6.5

Provisions that are current liabilities, SEK m 2017 2016 Restructuring /severance pay - 0.2 Guaranty commitments 20.3 22.4 Loss contract 0.5 1.3 Other 4.7 2.3 25.5 26.2

Restructuring /severance pay, SEK m 2017 2016 Reported value, opening balance 0.2 15.1 Provisions during the period 0.2 0.2 Amount used during the period - -15.1 Translation differences -0.0 0.0 0.4 0.2

Warranty exposure, SEK m 2017 2016 Reported value, opening balance 28.5 34.0 Provisions during the period 6.5 3.2 Amount used during the period -6.2 -8.3 Business acquisition 0.4 - Reclassification 4.0 3.8 Unutilised amount returned during the period -6.3 -5.6 Translation differences -0.8 1.4 26.1 28.5 80 Consolidated financial statements

21 Provisions, cont’d

Loss contract, SEK m 2017 2016 Reported value, opening balance 1.3 2.9 Provisions during the period 3.5 0.3 Amount used during the period -0.5 - Reclassification - -0.1 Unutilised amount returned during the period -1.2 -1.6 Translation differences -0.2 -0.2 2.9 1.3

Other, SEK m 2017 2016 Reported value, opening balance 2.7 2.3 Provisions during the period 4.3 0.9 Amount used during the period -0.1 - Business acquisition -0.8 - Reclassification -0.2 0.3 Unutilised amount returned during the period -0.1 -0.9 Translation differences -0.2 0.1 5.6 2.7

Total provisions, SEK m 2017 2016 Reported value, opening balance 32.7 54.3 Provisions during the period 14.5 4.6 Amount used during the period -6.8 -23.4 Business acquisition -0.4 - Reclassification 3.8 4.0 Unutilised amount returned during the period -7.6 -8.1 Translation differences -1.2 1.3 35.0 32.7

Warranties Provision for product warranties are based on a calculation made on historical data.

22 Other liabilities

Other long-term liabilities, SEK m 2017 2016 Deferred payment of acquisition price upon business acquisition (see more in note 4) 152.1 - Other liabilities 1.6 1.4 153.7 1.4

Other short-term liabilities, SEK m 2017 2016 Personnel-related liabilities 32.7 29.5 VAT payable 24.6 19.1 Fair value of currency derivatives 0.1 3.7 Advances from customers 48.8 52.7 Invoiced income not yet recognized concerning projects 118.8 163.2 Other liabilities 13.6 8.8 238.6 277.0

23 Accrued Expenses and Prepaid Income

SEK m 2017 2016 Personnel-related expenses 104.6 114.8 Audit expenses 4.9 3.7 Sales costs 7.8 6.1 Freight and customs costs 0.2 0.2 Other 31.1 32.1 148.6 156.9

81 Nederman’s 2017 Annual Report and Sustainability Report

24 Financial risks and financial policies

RISKS AND UNCERTAINTIES – FINANCE POLICY INTEREST RISKS The Nederman Group is exposed to a number of risks mainly arising due to purchas- The Nederman Group is via its net debt exposed to interest rate risk. The Group’s ing and selling products in foreign currencies. Currency rates and interest rates af- interest-bearing assets and liabilities are subject to variable interest rates or with a fect the Group's earnings and cash flow. The Nederman Group is also exposed to maximum term or interest rate commitment of three months, according to financ- refinancing and liquidity risks, credit risks and counterparty risks. The board of di- ing agreements with the Group’s lenders. A change in interest rate of 1 percent rectors sets policies for risk management. The Nederman Group’s central finance would have affected net financial items in 2017 by SEK 5.5m (6.6) based on the av- department is responsible for identifying and effectively limiting the Group’s finan- erage net debt of the year. The Nederman Group has made the assessment that any cial risks. The finance function reports via CFO to the Board. reasonable changes in interest rates will not affect the Group’s earnings in such a significant way that there is any need to hedge against interest rate rises via financial instruments. This assessment is updated regularly. LIQUIDITY RISKS The liquidity in the Group is not exposed to any significant seasonal fluctuations. EFFECTIVE INTEREST AND MATURITY STRUCTURE The parent company has a financing agreement with Skandinaviska Enskilda Bank- The table below presents the effective interest rate on the closing day and the fi- en (SEB) formulated as a 5-year framework agreement amounting to SEK 1,000m. nancial liabilities’ maturity structure/interest rate renegotiation. The effective in- The agreement runs to December 2020. At the end of the year this had been uti- terest rate is 1.79 percent (1.69). lised to the amount of SEK 527.3m (554.3) in revolving credit. The parent company also has a financing agreement with Svenska Handelsbanken (SHB) formulated as a 3-year framework agreement amounting to SEK 400m. The agreement runs to June 2020. At the end of the year this had been utilised to the amount of SEK 295.4 m (147.7) in revolving credit. During the year, borrowings have been made in the amount of SEK 150.0 m (14.0) and amortisation has taken place in the amount of SEK 0.0 m (138.1). In the event of a change of ownership, where a party or parties acting together, acquire shares corresponding to more than 50 percent of the votes, the bank has the right to cancel the agreement in advance under certain conditions.

Nominal Interest amounts Between 3 extension in original Within 3 and 12 Between 1 Between 3 2017, SEK m Interest rate % Time Currency currency Total months months and 3 yrs and 5 yrs Bank loan (revolving) 0.750 28.02.2018 SEK 110.8 112.8 0.5 1.5 110.8 - Bank loan (revolving) 0.750 28.02.2018 SEK 14.0 14.4 0.1 0.2 14.1 - Bank loan (revolving) 0.900 31.01.2018 SEK 58.0 60.7 0.3 0.8 59.6 - Bank loan (revolving) 0.900 31.01.2018 EUR 17.2 178.6 0.8 2.3 175.5 - Bank loan (revolving) 2.469 31.01.2018 USD 36.5 316.4 1.3 4.0 311.1 - Bank loan (revolving) 2.130 31.01.2018 USD 2.6 22.0 0.1 0.3 21.6 - Bank loan (revolving) 0.750 31.01.2018 SEK 150.0 153.8 0.7 2.0 151.1 - Financial leasing liabilities 0.4 0.1 0.1 0.1 0.1 Accounts payable 298.9 284.3 14.6 - - Derivatives 0.1 -0.0 0.1 0.0 -

2016, SEK m Bank loan (revolving) 0.950 28.02.2017 SEK 110.8 114.6 0.5 1.4 112.7 - Bank loan (revolving) 0.950 28.02.2017 SEK 14.0 14.6 0.1 0.2 14.3 - Bank loan (revolving) 1.050 31.01.2017 SEK 58.0 62.4 0.2 0.7 2.0 59.5 Bank loan (revolving) 1.050 31.01.2017 EUR 17.2 178.6 0.7 2.1 5.6 170.2 Bank loan (revolving) 1.885 28.02.2017 USD 2.6 24.6 0.1 0.3 24.2 - Bank loan (revolving) 1.820 31.01.2017 USD 36.5 360.2 1.4 4.2 11.2 343.4 Financial leasing liabilities 0.5 0.1 0.2 0.2 - Accounts payable 315.2 307.2 8.0 - - Derivatives -3.0 -2.3 -0.7 - -

82 Consolidated financial statements

24 Financial risks and financial policies, cont'd

The Group’s agreements with SEB and SHB on bank loans include net debt cov- CREDIT RISKS enants whereby net debt/EBITDA shall be a maximum of 3.5 times and interest Credit risks in accounts receivable rate coverage shall be a minimum of 3.75. On the closing date all covenants had The risk that the Group’s customers may not pay their trade debts constitutes a been fulfilled. customer credit risk. In order to limit this, the Nederman Group uses credit policies which limit the outstanding amounts and credit terms for different customers. For new customers and for risk markets it is normally required a letter of credit or ad- Interest on the loan is variable, but is normally set for three months. vance payment. For established customers the credit limit is set and carefully monitored in order to limit the risks. The Group’s largest individual customer account- According to the Group’s finance policy, the board of directors establishes from time ed for 2.0 percent of sales. The five largest customers accounted for 5.6 percent of to time whether interest rate swaps will be used in order to hedge interest rates. At sales. The allocation of risk may thus be considered to be very good. the present time the Board has decided that there shall be no interest rate hedges. This decision may be reviewed in connection with a possible increase of the loan The Group’s bad debt losses amounted to SEK 3.2m in 2017. Of the Group’s total ac- exposure. counts receivable after impairment of SEK 529.5m, 5.2 percent (4.3) is made up of receivables overdue by more than 90 days. Provisions for credit losses are made The Group’s financial liabilities, excluding provision for pensions amounted at the after an individual assessment. As of 31 December 2017, the provisions for credit end of the year to SEK 822.8m of which SEK 822.4 m was for revolving credit and losses amounted to SEK 25.7 m (19.7) corresponding to 4.6 percent (3.6) of total SEK 0.4 m for financial leasing liabilities. SEK 0.0 m of the bank overdraft was utilised. accounts receivables.

The Group had SEK 360.9m in cash and cash equivalents and SEK 98.4m in unuti- In certain cases, credit insurance is used to secure the payments from customers. lised credit. In addition there was a credit facility of SEK 472.7m, which is a part of In larger projects requires payment terms include a fixed-payment plan with pay- Nederman’s loan agreement with SEB and a further SEK 104.6 as part of Neder- ments based on the degree of completion. man’s loan agreement with SHB. On 31 December 2017 the disposable amount of funds was therefore SEK 1,036.6 m.

Maturity structure, net after provision for dubious trade receivables, SEK m 2017 2016 Not overdue 362.9 356.8 Overdue accounts receivables: 1-30 days 93.2 95.9 31-60 days 29.0 28.8 61-90 days 17.0 20.9 91-180 days 18.9 11.4 181-360 days 5.8 9.9 >360 days 2.7 1.4 Total overdue accounts receivables 166.6 168.3

Total accounts receivables 529.5 525.1

The provision for bad debt losses changed during the year as follows: 2017 2016 Opening balance -19.7 -20.2 Business acquisition -2.1 - Provisions for uncertain receivables -9.6 -2.6 Receivables written off and not recoverable 3.5 1.8 Reversed provisions 1.6 1.8 Translation differences 0.6 -0.5 Closing balance -25.7 -19.7

Other counterparties Transaction exposure Credit exposure arises with the investments of liquid funds and trading in deriva- Transaction exposure arises when Group companies make purchases in one cur- tive instruments. The risk that the counterparty does not fulfil its obligations is lim- rency and sell in another currency. In order to limit the transaction exposure in the ited via the choice of creditworthy counterparties. According to the Group’s finance Nederman Group, the main rule is that the providing companies sell to the sales policy, liquid funds will only be invested in first-class banks. companies in the sales company’s local currency. The transaction exposure in this way thus becomes very small in the sales companies. Foreign currency risks The Nederman Group is via its international operations exposed to currency risks The largest supply company is located in Sweden and 61 percent of purchases there due to changes in exchange rates, which influence the Group’s income statement are done in SEK. Other purchases are made mainly in EUR and to a smaller extent in and statement of financial position. The Group’s currency exposure encompasses USD and GBP. both transaction exposure and translation exposure. It is mainly for larger projects on export markets that the pricing is in foreign currencies and in these cases the translation exposure is hedged.

83 Nederman’s 2017 Annual Report and Sustainability Report

24 Financial risks and financial policies, cont'd

Invoicing in 2017 was: USD 34% EUR 21% SEK 8% CNY 7% GBP 5% DKK 4% NOK 3% PLN 3% AUD 2% CAD 2% THB 2% Other 9%

According to the Group’s finance policy around 70 percent of the expected currency The table below shows when the derivatives related to cash flow hedges are ex- flows in foreign currencies are hedged against currency risk eight months forward. pected to affect earnings. Gains or losses are recognized in earnings in the same In cases where the currency exposure occurs in tangible projects the currency ex- period in which the forecasted hedged items affect earnings. Cash flow is expect- posure is hedged. In 2017 the Nederman Group used foreign exchange forward con- ed to be affected in the corresponding periods when derivatives affect earnings. tracts to hedge currency exposure. Hedge accounting is applied for derivative instruments entered into to hedge highly probable forecasted sales in EUR, GBP, PLN and USD, and for forecasted purchases in EUR, GBP, PLN and USD.

Cash flow hedges have been deemed effective, and on the balance sheet date for 2017 an unrealised gain of SEK 3.1m (-2.8) was reported in other comprehensive income attributable to revaluation of foreign exchange forward contracts at fair value. The ineffectiveness for cash flow hedging posted to the income statement, where it included operating profits, amounted as of the balance sheet date to SEK 0.0m (-1.7).

Period when cash flow hedges affect earnings 2018 2019 SEK m Q1 Q2 Q3 Q4 Q1 Q2 Total Foreign exchange forwards in USD m - 0.1 - 0.1 - 0.0 0.2 Foreign exchange forwards in NOK m -0.0 - -0.1 - -0.0 - -0.1

A change in exchange rates of +/- 3 percent entails an effect on the operating profits of: 2017, SEK m -3% +3% EUR -5.0 5.0 USD -5.9 5.9 GBP -1.4 1.4 PLN -1.0 1.0

2016, SEK m -3% +3% EUR -6.7 6.7 USD -6.8 6.8 GBP -2.0 2.0 PLN -0.4 0.4 based on the Groups net flows in these currencies as well as the translation impact on the Group’s Income Statement.

FAIR VALUE Calculation of fair value. In substance, fair value corresponds to recorded value in the statement of financial Financial instruments measured at fair value are divided across the following three position. The major part of the Group’s financial instruments consists of accounts levels: receivables, cash and cash equivalents, interest bearing liabilities and accounts payables, measured at amortised cost. For these categories of financial instru- 1. Fair value of listed financial instruments based on current market values on the ments the recorded value at cost corresponds to fair value. The Group holds deriv- closing date. ative instruments, classified as financial assets and liabilities at fair value through 2. For unlisted financial instruments, or inactive markets, the value is acquired us- profit or loss, in the category held for trading. Recorded value and fair value for ing assessment methods and the Group makes assumptions based on market these instruments are stated below. For this category of financial instruments the conditions on the closing date. Market interest rates are used to calculate the fair value has been based upon observable market data not quoted in an active mar- fair value of long-term loans. ket. 3. For financial instruments whose value is not based on observable data, i.e. for market value is not indicated, fair value is considered to be the same as reported value.

The market value used to determine fair value was established using directly observable market data not listed on an active market (level 2).

84 Consolidated financial statements

24 Financial risks and financial policies, cont'd

Posted at fair value Not posted at fair value Other Cash Currency Accounts short-term and cash Financial assets 2017, SEK m contracts receivables receivables equivalents Level 2 Note 14 14 28 Holdings for trading purposes - - - - Identified at fair value - - - - Hedging instruments 0.2 - - - Investments held to maturity - - - - Loans and accounts receivable - 529.5 139.1 360.9 Financial assets that may be sold - - - - Other liabilities - - - - Total 0.2 529.5 139.1 360.9

Posted at fair value Not posted at fair value Financial Cheque Other Currency leasing overdraft Accounts short-term Financial liabilities 2017, SEK m contracts Bank loans liabilities credit payable liabilities Level 2 Note 22 19 19 19 22, 23 Holdings for trading purposes ------Identified at fair value ------Hedging instruments -0.1 - - - - - Investments held to maturity ------Loans and accounts receivable ------Financial assets that may be sold ------Other liabilities - -822.4 -0.4 - -298.9 -387.2 Total -0.1 -822.4 -0.4 - -298.9 -387.2

Posted at fair value Not posted at fair value Other Cash Currency Accounts short-term and cash Financial assets 2016, SEK m contracts receivable receivables equivalents Level 2 Note 14 14 28 Holdings for trading purposes - - - - Identified at fair value - - - - Hedging instruments 0.7 - - - Investments held to maturity - - - - Loans and accounts receivable - 525.1 202.4 287.8 Financial assets that may be sold - - - - Other liabilities - - - - Total 0.7 525.1 202.4 287.8

Posted at fair value Not posted at fair value Financial Cheque Other Currency leasing overdraft Accounts short-term Financial liabilities 2016 , SEK m contracts Bank loans liabilities credit payable liabilities Level 2 Note 22 19 19 19 22, 23 Holdings for trading purposes ------Identified at fair value ------Hedging instruments -3.7 - - - - - Investments held to maturity ------Loans and accounts receivable ------Financial assets that may be sold ------Other liabilities - -702.4 -0.5 - -315.2 -430.2 Total -3.7 -702.4 -0.5 - -315.2 -430.2

The reported value of accounts receivable, other receivables, cash and cash equivalents, accounts payable and other liabilities constitute a reasonable approximation of fair value.

85 Nederman’s 2017 Annual Report and Sustainability Report

24 Financial risks and financial policies, cont'd

Financial instruments assessed at fair value Connection between essential non Essential non- observable input essential non- and calculation Type Assessment method observable input of fair value Market rates: Foreign exchange forward contracts Fair values are based on quotations ET ET of brokers. Similar contracts traded in an active market and rates reflect actual transactions on comparable instruments.

Financial instruments not assessed at fair value Essential non- Type Assessment method observable input Other financial liabilities *) Discounted cash flows ET

*) Other financial liabilities refer to bank loans, financial leasing liabilities and accounts payable.

NETTING AGREEMENTS AND SIMILAR AGREEMENTS lowed if the other party or the Group can not settle their obligations. Moreover, it is The Group enters into derivative contracts under the International Swaps and De- not the other party or the Group’s intention to settle the balances on a net basis, or rivatives Association (ISDA) master netting agreements. The agreements mean at the same time. that when a counterparty is unable to regulate their obligations under any transaction the contract is cancelled and all outstanding transactions shall be governed The information in the table below shows financial instruments covered by a legally by a net amount. ISDA contracts do not meet the criteria for offsetting in the report enforceable master netting agreement or a similar agreement. on financial position. This is because the offset under ISDA agreements are only -al

Net amount in report Financial on instrument Financial Financial financial which are not Net 2017, SEK m Note assets liabilities position receipts amounts Financial assets Other investments, including derivatives - Currency derivatives 14 0.2 - - - 0.2

Financial liabilities Accounts payable and other liabilities - Currency derivatives 22 - -0.1 - - -0.1

Net amount in report Financial on instrument Financial Financial financial which are not Net 2016, SEK m Note assets liabilities position receipts amounts Financial assets Other investments, including derivatives - Currency derivatives 14 0.7 - - - 0.7

Financial liabilities Accounts payable and other liabilities - Currency derivatives 22 - -3.7 - - -3.7

86 Consolidated financial statements

24 Financial risks and financial policies, cont'd

The following foreign exchange forward contracts had been entered on the closing date: Amount to sell in Amount the original to obtain Recorded Marketing Currency currency SEK m value, SEK m value, SEK m USD m 1.6 13.1 0.2 0.2 NOK m 3.6 3.6 -0.1 -0.1 16.7 0.1 0.1

Total market value 0.1 0.1

Translation exposure Net assets in the Group are divided across the following currencies: Currency, SEK m 2017 2016 SEK 674.1 63% 656.6 67% EUR 204.1 19% 186.1 19% GBP 60.6 6% 47.0 5% USD 6.2 1% 9.6 1% CAD 10.2 1% 10.2 1% NOK 47.0 4% 0.0 0% PLN 103.5 10% 101.2 10% CNY 59.0 5% 57.6 6% DKK -144.6 -13% -158.3 -16% BRL 20.0 2% 26.6 3% Other 35.7 2% 45.6 5% 1,075.8 100% 982.2 100%

The Group’s policy is not to hedge translation exposure in foreign currency.

25 Operational Leasing

Leasing fees were the company is the lessee, SEK m 2017 2016 Future payments for non-cancellable leasing contract amount to: Within one year 57.7 52.1 Between one and five years 123.5 85.3 More than five years 15.9 7.0 197.1 144.4

Of the Group’s operational leasing contracts the major part concerns rental agreements for property and the premises where the business operations are conducted.

Expenses for operating leases, SEK m 2017 2016 Minimum leasing fees 54.4 50.5 Variable fees 0.2 0.0 54.6 50.5

26 Pledged assets and contingent liabilities

Pledged assets , SEK m 2017 2016 Pledged assets for debts and provisions Assets with ownership restrictions (financial leasing) 0.9 0.8 0.9 0.8

Contingent liabilities, SEK m 2017 2016 FPG/PRI 0.7 0.8 Guaranty commitments 96.5 97.8 97.2 98.6

27 Related parties

CLOSELY RELATED RELATIONSHIPS TRANSACTIONS WITH KEY PERSONS IN LEADING POSITIONS No member of the Board of Directors or senior executives have or have had any Regarding the salaries and other remuneration, costs and commitments for pen- direct or indirect participation in any business transaction with Group companies sions and similar benefits, and severance payment agreements, for Board mem- which is or was of an exceptional character with regard to terms and conditions that bers, the CEO and other senior executives, see note 20. occurred during the year or in any previous year. Nor has any Group company provided any loan, given any guarantees or entered into any surety relationships for any of the members of the Board of Directors or senior executives. For intercompany transactions see, accounting principles note 1.

87 Nederman’s 2017 Annual Report and Sustainability Report

28 Statement of cash flow

Liquid funds, SEK m 2017 2016 Subcomponents in cash and cash equivalents: Cash and cash equivalents 360.9 287.8 Total according to statement of financial position 360.9 287.8

Adjustments for items not included in cash flow, SEK m 2017 2016 Capital gain on sale of tangible assets 0.4 -0.4 Provisions 3.2 -23.0 3.6 -23.4

Unused credits, SEK m 2017 2016 Disposable funds 1,036.6 1,087.7

The below table shows changes in liabilities included in financial activities.

Items not affecting cash flow Amount at beginning of Business Exchange rate Amount at the year Cash flow acquisition Interest gains/losses year end Long-term interest bearing liabilities - bank loans 702,2 149,6 0,5 -0,9 -29,2 822,2 Short-term interest bearing liabilities - bank loans 0,2 - - - - 0,2 Financial lease liabilities 0,5 -0,1 - - - 0,4 Total 702,9 149,5 0,5 -0,9 -29,2 822,8

29 Alternative performance measure

In addition to information on our reported IFRS results, we provide certain informa- The following underlying business measures are used: tion on an underlying business performance basis. We believe that our underlying Adjusted operating profits. Adjusted operating margin, EBIDTA, Adjusted EBIDTA, business performance measures provide meaningful supplemental information to Adjusted EBITDA margin. Equity/asset ratio, Net debt, Net debt/equity ratio. Op- both management, investors and other stakeholders. These underlying business erating capital. Return on equity. Return on operating capital. Capital turnover ra- performance measures should not be viewed in isolation or as substitutes to the tio. Net debt/adjusted EBITDA, Adjusted EBITDA/Net financial items. Interest cover equivalent IFRS measures, but should be used in conjunction with the most directly ratio. Organic growth. Sales growth. comparable IFRS measures in the reported results. This is a consistent application compared to previous periods.

SEK m 2017 2016 Operating profit 278.1 250.3 Acquisition costs 7.7 - Restructuring costs - - Adjusted operating profit 285.8 250.3

Adjusted operating profit 285.8 250.3 Net sales 3,148.5 3,107.3 Adjusted operating margin, % 9.1 8.1

Operating profit 278.1 250.3 Depreciation 52.7 47.7 EBITDA 330.8 298.0

EBITDA 330.8 298.0 Acquisition costs 7.7 - Restructuring costs - - Adjusted EBITDA 338.5 298.0

Adjusted EBITDA 338.5 298.0 Net sales 3,148.5 3,107.3 Adjusted EBITDA margin, % 10.8 9.6

Equity - Closing balance 1,075.8 982.2 Balance sheet total 2,970.9 2,653.4 Equity/assets ratio, % 36.2 37.0

Cash and cash equivalents 360.9 287.8 Long-term interest-bearing liabilities 822.5 702.4 Pension liabilities 123.4 109.2 Current interest bearing liabilities 0.3 0.5 Net debt 585.3 524.3

88 Consolidated financial statements

29 Alternative performance measure, cont'd

SEK m 2017 2016 Net debt 585.3 524.3 Equity - Closing balance 1,075.8 982.2 Net debt/equity ratio, % 54.4 53.4

Net debt 585.3 524.3 Equity - Closing balance 1,075.8 982.2 Operating capital 1,661.1 1,506.5

Equity - Opening balance 982.2 837.1 Equity - Closing balance 1,075.8 982.2 Equity - average 1,029.0 909.7 Net profit/loss for the period 186.3 172.1 Return on equity, % 18.1 18.9

Equity - average 1,029.0 909.7 Net Debt - opening balance 524.3 635.6 Net Debt - closing balance 585.3 524.3 Net Debt - average 554.8 580.0 Working capital - average 1,583.8 1,489.7 Adjusted operating profit 285.8 250.3 Return on operating capital, % 18.0 16.8

Net sales 3,148.5 3,107.3 Working capital - average 1,583.8 1,489.7 Capital turnover rate, multiple 2.0 2.1

Net debt 585.3 524.3 Adjusted EBITDA 338.5 298.0 Net debt/Adjusted EBITDA, multiple 1.7 1.8

Adjusted EBITDA 338.5 298.0 Net financial items -18.0 -18.6 Adjusted EBITDA/net financial items, multiple 18.8 16.0

Profit before tax 260.1 231.7 Financial expenses 24.8 21.4 Acquisition costs 7.7 - Restructuring costs - - EBT excl. financial expenses, acquisition costs and restructuring costs 292.6 253.1 Financial expenses 24.8 21.4 Interest cover ratio, multiple 11.8 11.8

Incoming orders, same period in previous year 2,992.3 3,171.8 Change in incoming orders, organic 137.6 -209.0 Change in incoming orders, currency effects 10.6 -8.4 Change in incoming orders, acquisitions 16.8 37.9 Incoming orders 3,157.3 2,992.3

Order growth, %, organic 4.6 -6.7 Order growth, %, currency effects 0.3 -0.3 Order growth, %, structural 0.6 1.3 Order growth, % 5.5 -5.7

Net sales, comparative period previous year 3,107.3 3,198.0 Change in net sales, organic 3.6 -127.1 Change in net sales, currency effects 9.9 -7.3 Change in net sales, acquisitions 27.7 43.7 Net sales 3,148.5 3,107.3

Sales growth, %, organic 0.1 -4.0 Sales growth, %, currency effects 0.3 -0.2 Sales growth, %, acquisitions 0.9 1.4 Sales growth, % 1.3 -2.8

89 Nederman’s 2017 Annual Report and Sustainability Report

30 Occurrences following the balance sheet date

No significant events have occurred after the closing date.

31 Important estimations and assessments

Certain assumptions about the future and certain estimations and assessments as INVENTORY ACCOUNTING of the close of the reporting period have special importance for the value of the as- Inventory is posted at the lower figure between the acquisition value and the net sets and liabilities in the balance sheet. Presented below are the areas where the realisable value. Valuation and assessment with regard to inventories are governed risk of changes in value during the subsequent year is significant because the as- through internal regulations, which is obligatory to follow for all companies within sumptions or estimations may need to be changed. the Group. The aim is to ensure that the Inventory is valued at the lower figure between the acquisition value and the net realisable value. When calculating the net EXAMINATION FOR IMPAIRMENT OF GOODWILL sales value, assumptions are mode concerning outgoing items, items with over-re- The book value of goodwill is reviewed at least once a year with respect to the pos- sistance, damages goods and estimated sales value based on the available informa- sible need for impairment. The review requires an assessment of the value in use tion. Inventory reserves as of 31 December amounted to SEK 80.3 (88.1) of the cash-generating unit, or group of cash-generating units, to which the goodwill value relates. This requires that several assumptions about the future situa- SOLUTION SALES tion and estimates of parameters have been made. A report of these are found in The revenue accounting attributable to project sales requires an assessment of note 12. As described in note 12 a change during 2017 in the conditions for these how great an extent the project has progressed, which calls for some estimations. assumptions and estimations might have an effect on the value of the goodwill. The The project sales are responsible for a considerable part of net sales and entail con- senior executives are of the opinion however that no reasonable changes in impor- siderable amounts of estimations. tant assumptions at the impairment test of the cash-generating units will result in a recoverable value lower than the carrying amount.

INCOME TAXES When estimating deferred tax assets and tax liabilities an assessment is made concerning the probability of whether the deferred tax assets will be utilised for settlement against future taxable profit. The fair value of these future taxable profits may deviate in terms of the future business climate and earnings capability or due to changed tax rules, see note 11.

32 Information about the parent company

Nederman Holding AB (publ) is a Swedish registered limited company with its registered office in Helsingborg, Sweden. The parent company’s shares are registered on the Nasdaq Stockholm Mid Cap list.

The address of the main office is: P.O. Box 602, SE-251 06 Helsingborg, Sweden. Visiting address is Sydhamnsgatan 2.

The consolidated reporting for 2017 comprises the parent company and its subsidiaries, collectively referred to as the Group.

90 Parent company’s statement

Income statement for the Parent company

1 January – 31 December SEK m Note 2017 2016 Net sales 1, 18 27.1 24.2 Administrative expenses -100.9 -84.9 Research and development expenses -5.4 -2.7 Restructuring costs - -0.8 Other operating revenues and expenses 2 -0.2 5.2 Operating profit 3, 4, 13, 16 -79.4 -59.0

Earnings from participations in Group companies 5, 18 100.7 85.2 Interest income and similar items 5, 18 35.7 32.2 Interest expenses and similar items 5, 18 -17.2 -13.9 Profit after financial items 39.8 44.5

Group contribution 6, 18 112.4 101.8 Profit before tax 152.2 146.3

Taxes 7 -8.9 -14.1 Net profit for the year 143.3 132.2

Statement of comprehensive income for the Parent company

1 January – 31 December SEK m Note 2017 2016 Net profit for the year 143.3 132.2 Other comprehensive income - - Items that cannot be reclassified to the income statement - -

Items that have been or can be reclassified to net profit - -

Other comprehensive income for the year, net after tax - - Total comprehensive income for the year 143.3 132.2

91 Nederman’s 2017 Annual Report and Sustainability Report

Balance sheet for the Parent company

31 December SEK m Note 2017 2016 Assets Intangible fixed assets 8 60.4 44.6 Tangible fixed assets 9 0.4 1.0 Financial fixed assets Long-term receivables, Group companies 18 532.3 576.6 Participations in Group companies 19 1,311.8 906.5 Other long-term accounts receivable 7 2.1 10.9 Total financial fixed assets 1,846.2 1,494.0 Total fixed assets 1,907.0 1,539.6

Current assets Receivables from Group companies 18 347.8 319.1 Tax assets 7 1.2 1.2 Other receivables 10 11.5 5.6 Prepaid expenses and accrued income 11 7.9 5.7 Cash and cash equivalents 20 127.1 131.9 Total current assets 495.5 463.5 Total assets 2,402.5 2,003.1

Equity Restricted equity Share capital 1.2 1.2 Reserves 292.5 292.5 Fund for development expenses 13.0 7.0 Unrestricted equity 21 Share premium reserve 5.9 5.9 Retained earnings 412.9 351.0 Net profit for the year 143.3 132.2 Total equity 868.8 789.8

Liabilities Credit institution liabilities 12 821.9 701.9 Other long-term liabilities 14 152.1 - Total long-term liabilities 974.0 701.9

Accounts payable 18.4 12.8 Liabilities to Group companies 18 521.5 482.4 Other liabilities 14 1.3 1.7 Accrued expenses and prepaid income 15 18.5 14.5 Total current liabilities 559.7 511.4 Total equity and liabilities 2,402.5 2,003.1

For information on the parent company’s pledged assets and contingent liabilities, see note 17.

92 Parent company’s statement

Statement of changes in equity for the Parent company

Restricted equity Unrestricted equity Total equity Retained Fund for Earnings, incl. Profit development Share premium Net profit for brought Share capital Reserves expenses reserve the year forward Opening equity 01/01/2016 1.2 292.5 – 5.9 415.9 715.5 Net profit for the year – – – – 132.2 132.2 Transfer to development fund – – 7.0 – -7.0 - Other comprehensive income Total other comprehensive income for the year – – – – – – Total comprehensive income – – 7.0 – 125.2 132.2 Transactions with Group’s owners Dividends – – – – -58.4 -58.4 Share-based remuneration – – – – 0.5 0.5 Closing equity 31/12/2016 1.2 292.5 7.0 5.9 483.2 789.8

Opening equity 01/01/2017 1.2 292.5 7.0 5.9 483.2 789.8 Net profit for the year – – – – 143.3 143.3 Transfer to development fund – – 6.0 – -6.0 - Other comprehensive income Total other comprehensive income for the year – – – – – – Total comprehensive income – – 6.0 – 137.3 143.3 Transactions with Group’s owners Dividends – – – – -64.3 -64.3 Share-based remuneration – – – – - - Closing equity 31/12/2017 1.2 292.5 13.0 5.9 556.2 868.8

93 Nederman’s 2017 Annual Report and Sustainability Report

Cash flow statement for the Parent company

1 January – 31 December SEK m Note 2017 2016 Operating activities Operating profit/loss -79.4 -59.0 Adjustment for items not included in cash flow 20 14.2 38.4 Dividends received 18 110.7 95.2 Interest received and other financial items 32.2 32.3 Interest paid and other financial items -17.2 -11.7 Income tax paid -0.0 -0.3 Cash flow from operating activities before changes in working capital 60.5 94.9

Cash flow from changes in working capital Increase (-)/Decrease(+) of operating receivables 108.2 99.4 Increase (+)/Decrease (-) of operating liabilities 3.1 1.3 111.3 100.7 Cash flow from operating activities 171.8 195.6

Investing activities Capital expenditure for tangible fixed assets 0.5 -1.0 Capital expenditure for intangible fixed assets -29.9 -25.8 Acquisition/capital contribution, subsidiaries -263.9 -7.6 Cash flow from investing activities -293.3 -34.4

Financial activities New loans 149.2 14.0 Amortisation of loans - -137.1 Change in interest-bearing receivables/liabilities 31.8 140.2 Dividend paid -64.3 -58.4 Cash flow from financing activities 116.7 -41.3

Cash flow for the year -4.8 119.9 Cash and cash equivalents at the beginning of the year 131.9 12.0 Cash and cash equivalents at the end of the year 20 127.1 131.9

94 Parent company’s statement

1 Net sales

SEK m 2017 2016 Management charges, debited to subsidiaries 27.1 24.2 27.1 24.2

2 Other operating income and expenses

SEK m 2017 2016 Exchange gains and losses on operating receivables/liabilities -0.2 5.2 -0.2 5.2

3 Employees and staff expenses

2017 2016 Average number of employees Women Men Total Women Men Total Sweden 13 11 24 12 12 24 Total in parent company 13 11 24 12 12 24

Distribution according to gender in senior management, percentage of women 2017 2016 Board of Directors, proportion of women 29% 25% Other senior executives 25% 25%

Salaries, other remuneration and social security expenses, SEK m 2017 2016 Salaries and other remuneration 28.8 26.4 Social security expenses 16.2 15.4 (of which are pension expenses) 1) (3.0) (3.2)

1) Of the parent company’s pension costs SEK 1.4m (1.3) concern the CEO for the parent company. There are no outstanding pension obligations to the Group’s Board of Direc- tors, CEO and senior executives.

Salaries and other remuneration allocated between the board of directors and other employees, SEK m 2017 2016 Board of Directors, CEO and senior executives 7.5 6.0 (of which variable compensation) (0.9) (0.4) Other employees 21.3 20.4 28.8 26.4

4 Fees and Expenses to Auditors

SEK m 2017 2016 EY Audit assignment 1.1 1.1 Other assignments 0.2 0.3 1.3 1.4

5 Net financial items

SEK m 2017 2016 Earnings from participations in Group companies Dividends paid 110.7 95.2 Impairment of book value of shares in subsidiaries -10.0 -10.0 100.7 85.2

Interest income and similar items Interest income, credit institutions 0.5 0.0 Other financial income, Group companies 31.7 32.2 Exchange rate changes 3.5 - 35.7 32.2

Interest expenses and similar items Interest expenses, credit institutions -13.8 -11.7 Other financial expenses, Group companies -0.7 - Exchange rate changes -2.7 -2.2 -17.2 -13.9

95 Nederman’s 2017 Annual Report and Sustainability Report

6 Appropriations

SEK m 2017 2016 Group contribution 112.4 101.8 112.4 101.8

7 Taxes

REPORTED IN INCOME STATEMENT, SEK m 2017 2016 Deferred tax expense (–) /tax income (+) Utilisation of previously activated loss carry forwards -8.9 -14.1 Total reported tax expense -8.9 -14.1

Reconciliation of effective tax, SEK m 2017 2016 Profit before tax 152.2 146.3 Tax according to the applicable tax rate for the Parent company -33.5 -32.2 Non-tax deductible expenses -2.3 -2.3 Non-taxable income 24.7 20.9 Utilisation of previously uncapitalised loss carry-forward 2.2 -0.5 Reported effective tax -8.9 -14.1

Current tax receivables amount to SEK 1.2 m (1.2) and representing the recoverable amount of current tax on the result for the year.

POSTED TO THE STATEMENT OF FINANCIAL POSITION Deferred tax assets, SEK m 2017 2016 Deferred tax assets relate to the following: Loss carryforwards 2.1 10.9 Tax assets according to statement of financial position 2.1 10.9

Deferred tax receivables have been reported to the extent that it is considered probable that the loss can be set off against future profits.

8 Intangible fixed assets

2017 Development Computer SEK m in progress programs Total Accumulated cost Opening balance 17.0 54.8 71.8 Internally developed assets 6.8 - 6.8 Year’s capital expenditure - 23.2 23.2 Closing balance 23.8 78.0 101.8

Accumulated amortisation and impairment Opening balance -2.2 -25.0 -27.2 Amortisation for the year -2.6 -11.6 -14.2 Closing balance -4.8 -36.6 -41.4

Carrying amount Opening balance 14.8 29.8 44.6 Closing balance 19.0 41.4 60.4

96 Parent company’s statement

8 Intangible fixed assets, cont'd

2016 Development Computer SEK m in progress programs Total Accumulated cost Opening balance 10.3 35.3 45.6 Internally developed assets 6.7 - 6.7 Year’s capital expenditure - 19.0 19.0 Reclassifications - 0.5 0.5 Closing balance 17.0 54.8 71.8

Accumulated amortisation and impairment Opening balance -0.3 -18.5 -18.8 Amortisation for the year -1.9 -6.0 -7.9 Reclassifications - -0.5 -0.5 Closing balance -2.2 -25.0 -27.2

Carrying amount Opening balance 10.0 16.8 26.8 Closing balance 14.8 29.8 44.6

Amortisation and impairments, SEK m 2017 2016 Amortisation is included in the following lines in the income statement: Cost of goods sold -2.6 -1.9 Administrative expenses -11.6 -6.0 -14.2 -7.9

9 Tangible fixed assets

2017 Equipment, SEK m tools, fixtures Total Accumulated cost Opening balance 6.6 6.6 Year’s capital expenditure 0.4 0.4 Sold and scrapped -0.9 -0.9 Closing balance 6.1 6.1

Accumulated depreciation and impairment Opening balance -5.6 -5.6 Depreciation for the year -0.2 -0.2 Sold and scrapped 0.1 0.1 Closing balance -5.7 -5.7

Carrying amount Opening balance 1.0 1.0 Closing balance 0.4 0.4

2016 Equipment, SEK m tools, fixtures Total Accumulated cost Opening balance 5.6 5.6 Year’s capital expenditure 1.0 1.0 Closing balance 6.6 6.6

Accumulated depreciation and impairment Opening balance -5.2 -5.2 Depreciation for the year -0.4 -0.4 Closing balance -5.6 -5.6

Carrying amount Opening balance 0.4 0.4 Closing balance 1.0 1.0

97 Nederman’s 2017 Annual Report and Sustainability Report

9 Tangible fixed assets, cont'd

Depreciation and impairments, SEK m 2017 2016 Depreciation is included in the following lines in the income statement: Administrative expenses -0.2 -0.4 -0.2 -0.4

10 Other receivables

Other receivables which are current assets, SEK m 2017 2016 VAT receivable 6.8 5.4 Other receivables 4.7 0.2 11.5 5.6

11 Prepaid expenses and accrued income

SEK m 2017 2016 Computer/license costs 3.8 2.8 Insurance 2.0 1.3 Bank costs 0.9 1.1 Other 1.2 0.5 7.9 5.7

12 Liabilities to credit institutes

Long-term liabilities, SEK m 2017 2016 Bank loans 821.9 701.9 821.9 701.9

13 Pensions

DEFINED-CONTRIBUTION PLANS In Sweden the Group has defined-contribution pension plans paid in full by the companies. Payments into these plans are continual in accordance with the rules for each plan.

SEK m 2017 2016 Costs for defined-contribution pension plans 3.0 3.2 3.0 3.2

For more information about handling of pensions, see Group note 20.

14 Other liabilities

Other long-term liabilities, SEK m 2017 2016 Deferred payment of acquisition price (see more in Group note 4). 152.1 - 152.1 -

Other short-term liabilities, SEK m 2017 2016 Personnel-related liabilities 1.3 1.7 1.3 1.7

98 Parent company’s statement

15 Accrued expenses and prepaid income

SEK m 2017 2016 Personnel-related expenses 14.0 11.6 Audit expenses 0.5 0.5 Other 4.0 2.4 18.5 14.5

16 Operational leasing

Leasing fees were the company is the lessee, SEK m 2017 2016 Future minimum leasing fees for non-cancellable leasing contract amount to: Within one year 0.4 0.4 Between one and five years 0.3 0.2 0.7 0.6

Expenses for operating leases, SEK m 2017 2016 Minimum leasing fees 0.7 0.6 0.7 0.6

17 Pledged assets and contingent liabilities

Pledged assets , SEK m 2017 2016 In the form of pledged assets for own liabilities and provisions Shares in subsidiaries none none none none

Contingent liabilities, SEK m 2017 2016 FPG/PRI 0.7 0.8 Guarantees on behalf of subsidiaries 355.4 363.1* 356.1 363.9

* Amounts for 2016 have been changed compared with those of the previous year’s annual report based on an updated assessment of the parent company’s guarantees.

18 Related parties

Closely related relationships The parent company has a closely related relationship with its subsidiaries, Close relations, subsidiaries, SEK m 2017 2016 see note 19. Net sales 27.1 24.2 Dividends received 110.7 95.2 No member of the Board of Directors or senior executives have or have had any Group contribution received 112.4 101.8 direct or indirect participation in any business transaction with Group companies Financial income 31.7 32.2 which is or was of an exceptional character with regard to terms and conditions Financial expenses -0.7 - that occurred during the year or in any previous year. Nor has any Group company Receivables, 31 December 880.1 895.7 provided any loan, given any guarantees or entered into any surety relationships Liabilities, 31 December 521.5 482.4 for any of the members of the Board of Directors or senior executives. For intercompany transactions see, accounting principles note 1. Loans to subsidiaries are Transactions with key persons in leading positions made on market terms. Regarding the salaries and other remuneration, costs and commitments for pensions and similar benefits, and severance payment agreements, for Board members, the CEO and other senior executives, see Group note 20.

99 Nederman’s 2017 Annual Report and Sustainability Report

19 Group companies

Parent company’s shareholdings and participations in subsidiaries 2017 2016 Carrying Carrying Number Owner amount amount Subsidiary Corp. ID. no. Domicile / Country of shares Share SEK m SEK m AB Ph. Nederman & Co 556089-2951 Helsingborg, Sweden 550,000 100% 229.7 229.7 Nederman S.A.S. 434134615 Paris, France - -* - - Nederman Distribution Sales AB 556272-9854 Helsingborg, Sweden - -* - - Nederman Ibérica S.A. A79441762 Madrid, Spain - -* - - Nederman Logistics North America Ltd 426065-1 Mississauga, Canada - -* - - Töredal Verkstad AB 556199-7601 Kvänum, Sweden - -* - - Nederman (Shanghai) Co Ltd 9131000067113929XX Shanghai, China - -* - - Nederman International Trading Shanghai Co. Ltd Ltd 91310115688759399Y Shanghai, China - -* - - Nederman Magyarorszag Kft 01-09-874950 Budapest, Hungary - 100% 0.2 0.2 Nederman Nordic AB 556426-7358 Helsingborg, Sweden 2,000 100% 110.6 110.6 Nederman Norge, Branch of Nederman Nordic AB 914149762 Skedsmo, Norway - -* - - Nederman Danmark, Branch of Nederman Nordic AB 36414642 Mariager, Denmark - -* - - Nederman N.V./S.A. 428727 Brussels, Belgium 4,000 100% 30.4 30.4 Nederman GmbH HRB225315 Stuttgart, Germany - 100% 19.2 19.2 Nederman GmbH (Austria) FN2315530k Vienna, Austria - -* - - Nederman Ltd 1393492 Preston, UK 10,000 100% 49.3 49.3 Nederman Filtration Ltd 562216 Preston, UK - -* - - Nederman CR s.r.o. 25634364 Prague, Czech Republic 1 100% 0.0 0.0 Nederman Holding USA Inc. 80-0699546 Wilmington, DE, USA - 100% 106.5 106.5 Nederman Manufacturing & Logistics LLC 90-0676051 Wilmington, DE, USA - -* - - Nordfab LLC 56-1230979 Wilmington, DE, USA - -* - - Nederman Shared Services LLC 46-4172135 Wilmington, DE, USA - -* - - Nederman MikroPul Holding Inc. 04-3833071 Wilmington, DE, USA - -* - - Nederman Corporation 56-0488262 Wilmington, DE, USA - -* - - National Conveyors Company Inc. 22-1547550 New York, NY USA - -* - - LCI Corporation International 56-0732889 Charlotte, NC, USA - -* - - Menardi LLC 56-2173466 Wilmington, DE, USA - -* - - Nederman Mikropul Canada Inc. 56-2172876 Wilmington, DE, USA - -* - - Nederman S. de R.L. de C.V MIK0001128K6 Col Juarez, Mexico - -* - - Nederman Services S. de R.L. de C.V MIK0001128K6 Col Juarez, Mexico - -* - - Nederman Mikropul LLC 46-4352369 Wilmington, DE, USA - -* - - Nederman Canada Ltd 105,836,613 Mississauga, Canada 1 100% 32.1 32.1 Nederman do Brasil Comércio de Produtos de Exaustao 05.880.850/0001-45 Sao Paulo, Brazil 3,365 100% 6.1 6.1 Ltda Arboga-Darenth Ltd 1048823.0 Preston, UK 10 100% 0.0 0.0 Nederman India Private Limited U74900PN2008FTC144278 Pune, India 100,000 100% 0.3 0.3 Nederman Makine Sanayi Ve Ticaret Limited Sirketi 647743 Istanbul, Turkey - 53%* 7.6 7.6 Nederman Holding Danmark A/S 28301650 Mariager, Denmark 60,500 100% 231.3 231.3 Nederman Filtration GmbH HRB391382 Freiburg, Germany - -* - - Nederman Holding Germany GmbH HRB701805 Freiburg, Germany - -* - - Nederman MikroPul GmbH HRB 33261 Cologne, Germany - -* - - Nederman OOO 1,082,468,018,511 Moscow, Russia - -* - - Nederman Manufacturing Poland Sp. z o.o. 50307 Marki, Poland - -* - - Nederman Polska Sp. z o.o. 109291 Marki, Poland - -* - - Nederman SEA Co Ltd - Chonburi, Thailand - -* - - Nederman (Malaysia) Sdn Bhd. 892768T Selangor, Malaysia - -* - - PT Nederman Indonesia - Jakarta, Indonesia - 10%* 0.2 0.2 Nederman Filtration AB 556609-6177 Malmö, Sweden - -* - - Nederman Manufacturing (Suzhou) Co Ltd 9132050578206245 93 Suzhou, China - -* - - Nordfab Europe AS 17011405 Mariager, Denmark - -* - - Lebon & Gimbrair Beheer N.V. 31,033,906 Amersfoort, the Netherlands - 100% 26.7 26.7 Nederman Nederland BV 58,655,360 Amersfoort, the Netherlands - -* - - Mikropul Holding BV 17,119,906 Amersfoort, the Netherlands - 100% 11.9 11.9 EFT France Holding 429,043,276 Pontcharra, France - -* - - Mikropul France SAS 303573307 Pontcharra, France - -* - - Nordfab Ducting Co Ltd - Chonburi, Thailand - 51%* 0.2 0.2 Nederman Manufacturing SEA - Chonburi, Thailand - -* - - Nederman MikroPul Pty Ltd - Bayswater, Victoria, Australia - 100% 14.4 14.4 Filtac AB 556652-2750 Kinna, Sweden - 100% 19.1 29.1 Menardi Filters Europe A/S 38209205 Mariager, Denmark - 100% 0.7 0.7 Nederman MikroPul Poland Sp. z o.o. 617869 Marki, Poland - -* - - NEO Monitors AS 986076832 Skedsmo, Norway 147,076 100% 415.3 - Total parent company 1,311.8 906.5

*) 100% owned by the Group

100 Parent company’s statement

19 Group companies, cont’d

Accumulated cost, SEK m 2017 2016 Opening balance 906.5 908.9 Acquisition of Group companies 415.3 - Formation of subsidiary - 0.7 Capital contribution - 6.9 Impairment of book value -10.0 -10.0 1,311.8 906.5

20 Statement of cash flow

Liquid funds , SEK m 2017 2016 Subcomponents in cash and cash equivalents: Cash and cash equivalents 127.1 131.9 127.1 131.9

Adjustments for items not included in cash flow, SEK m 2017 2016 Depreciation 14.4 8.3 Unrealised translation differences -0.2 30.1 14.2 38.4

Unused credits, SEK m 2017 2016 Disposable funds 1,036.6 1,087.7

21 Appropriation of profit or loss

The following is at the disposal of the Annual General Meeting of Nederman Holding AB (publ): SEK 2017 2016 Share premium reserve 5,866,700 5,866,700 Retained earnings 412,971,743 351,086,145 Net profit for the year 143,344,159 132,208,209 562,182,602 489,161,054

The Board of Directors and CEO propose a dividend to shareholders of SEK 6.00 (5.50) per share*) 70,177,506 64,305,830 to be transferred to the share premium reserve 5,866,700 5,866,700 to be transferred to retained earnings 486,138,396 418,988,524 562,182,602 489,161,054

*) Based on the number of shares outstanding as of 31 December. The dividend amount may be subject to change as treasury shares may be sold up to the record day of 13 April 2018.

22 Occurrences following the balance sheet date

No significant events have occurred after the closing date.

101 Nederman’s 2017 Annual Report and Sustainability Report

Signatures

The consolidated accounts and the annual report have The Directors’ report for the Group and parent company been drawn up in accordance with international accounting provides a fair overview of the Group’s and parent company’s standards as prescribed in Regulation (EC) no. 1606/2002 activities, position and results and they describe the main of the European Parliament and of the Council dated 19 July risks and uncertainties facing the parent company and Group 2002 concerning the application of international account- companies. The annual report and consolidated accounts will ing standards and good accounting practice in Sweden, and be subject to adoption by the Annual General Meeting to be they give a fair picture of the Group’s and parent company’s held on 19 April 2018. position and results.

Helsingborg, 14 March 2018

Jan Svensson Chairman

Per Borgvall Gunilla Fransson Gunnar Gremlin Board member Board member Board member

Ylva op den Velde Hammargren Sven Kristensson Johan Menckel Board member Board member and managing director Board member

Our audit report was issued on 16 March 2018 Ernst & Young AB

Staffan Landén Authorised public accountant

102 Auditor’s report

Auditor’s report To the general meeting of the shareholders of Nederman Holding AB, corporate identity number 556576-4205

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS

Opinions We therefore recommend that the general meeting of share- We have audited the annual accounts and consolidated ac- holders adopts the income statement and balance sheet for counts of Nederman Holding AB (publ) except for the corpo- the parent company and the group. rate governance statement on pages 50-53 and the statutory sustainability report on pages 36-41 for the financial year Our opinions in this report on the annual accounts and consol- 2017. The annual accounts and consolidated accounts of the idated accounts are consistent with the content of the addi- company are included on pages 18-102 in this document. tional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation In our opinion, the annual accounts have been prepared in ac- (537/2014) Article 11. cordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent com- Basis for Opinions pany as of 31 December 2017 and its financial performance We conducted our audit in accordance with International and cash flow for the year then ended in accordance with the Standards on Auditing (ISA) and generally accepted auditing Annual Accounts Act. The consolidated accounts have been standards in Sweden. Our responsibilities under those stand- prepared in accordance with the Annual Accounts Act and ards are further described in the Auditor’s Responsibilities present fairly, in all material respects, the financial position section. We are independent of the parent company and the of the group as 31 December 2017 and their financial perfor- group in accordance with professional ethics for account- mance and cash flow for the year then ended in accordance ants in Sweden and have otherwise fulfilled our ethical re- with International Financial Reporting Standards (IFRS), as sponsibilities in accordance with these requirements. This adopted by the EU, and the Annual Accounts Act. Our opinions includes that, based on the best of our knowledge and belief, do not cover the corporate governance statement on pages no prohibited services referred to in the Audit Regulation 50-53 and the statutory sustainability report on pages 36- (537/2014) Article 5.1 have been provided to the audited com- 41. The statutory administration report is consistent with pany or, where applicable, its parent company or its controlled the other parts of the annual accounts and consolidated ac- companies within the EU. counts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key Audit Matters

Key audit matters of the audit are those matters that, in our We have fulfilled the responsibilities described in the Audi- professional judgment, were of most significance in our audit tor’s responsibilities for the audit of the financial statements of the annual accounts and consolidated accounts of the cur- section of our report, including in relation to these matters. rent period. These matters were addressed in the context of Accordingly, our audit included the performance of proce- our audit of, and in forming our opinion thereon, the annual dures designed to respond to our assessment of the risks of accounts and consolidated accounts as a whole, but we do not material misstatement of the financial statements. The re- provide a separate opinion on these matters. For each matter sults of our audit procedures, including the procedures per- below, our description of how our audit addressed the matter formed to address the matters below, provide the basis for is provided in that context. our audit opinion on the accompanying financial statements.

103 Nederman’s 2017 Annual Report and Sustainability Report

Valuation of Goodwill

Description A description of the impairment test is presented in Note The carrying value of goodwill at 31 December 2017 was 12 “Intangible assets” and in Note 31 “Significant estimates SEK 969.9m, which corresponds to 33 % of the company’s and judgements”. total assets in the group. The company conducts an annual review and in the event of an indication of impairment, How our audit addressed this key audit matter to assure that the carrying value does not exceed the es- In our audit, we have evaluated and tested the company’s timated recoverable value. The recoverable amount is de- process to establish the impairment test, including by eval- termined for each cash generating unit by calculating the uating past accuracy of forecasts and assumptions. We also present value of future cash flows. Future cash flows are made comparisons with other companies in order to eval- based on management’s business plans and forecasts, and uate the reasonableness of future cash flows and growth include a number of assumptions, including on earnings assumptions, and with the help from our valuation special- performance, growth, investment requirements and the ists examined the selected discount rate and assumptions discount rate. about long term growth. We have also reviewed the company’s model and method for carrying out impairment testing Changes in assumptions have a great impact on the calcu- and evaluated the company’s sensitivity analyses. In our lation of the recoverable value and the assumptions that audit, we have also reviewed whether the information dis- the company makes will be of great importance when de- closed in the financial statements is appropriate. termining if there is a need for impairment. We have therefore considered that the valuation of goodwill is a key audit matter in the audit.

Revenue relating to Solutions (project sales)

Description How our audit addressed this key audit matter Net sales for 2017 amounts to total SEK 3,148.5m and of We have reviewed the company’s process for revenue rec- this SEK 1,325.5m relates to solutions (project sales), rep- ognition of segment solutions and assessed the company’s resenting 42 % of total net sales. The accounting policies evaluation of the degree of completion. We have by testing that the company applies for recognition of revenue attrib- samples reviewed the company’s assessments of expect- utable to solutions is described on page 62 of the annual ed profit or loss of the project by comparisons with agree- report and in Note 31 “Significant estimates and judgements, historical results and budget. The assessments ments” and means, among other things, that revenues and made by the company regarding the risk of loss has also expenses are recognized as projects are carried out, which been reviewed. We have also reviewed whether the infor- is known as the percentage of completion method. Revenue mation disclosed in the annual report is appropriate. recognition related to solutions requires that the company makes assessments of the degree of project completion and expected profit or loss of the project. Changes in these assessments can have a material impact on the result of the company, and we have therefore considered revenue recognition related solutions to be a key audit matter in the audit.

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Other Information than the annual accounts and Auditor’s responsibility consolidated accounts Our objectives are to obtain reasonable assurance about This document also contains other information than the an- whether the annual accounts and consolidated accounts as a nual accounts and consolidated accounts and is found on pag- whole are free from material misstatement, whether due to es 1-17. The Board of Directors and the Managing Director are fraud or error, and to issue an auditor’s report that includes responsible for this other information. our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in ac- Our opinion on the annual accounts and consolidated accordance with ISAs and generally accepted auditing standards counts does not cover this other information and we do not in Sweden will always detect a material misstatement when express any form of assurance conclusion regarding this oth- it exists. Misstatements can arise from fraud or error and are er information. considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic deci- In connection with our audit of the annual accounts and con- sions of users taken on the basis of these annual accounts and solidated accounts, our responsibility is to read the informa- consolidated accounts. tion identified above and consider whether the information is materially inconsistent with the annual accounts and consol- As part of an audit in accordance with ISAs, we exercise pro- idated accounts. In this procedure we also take into account fessional judgment and maintain professional skepticism our knowledge otherwise obtained in the audit and assess throughout the audit. We also: whether the information otherwise appears to be materially misstated. • Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether If we, based on the work performed concerning this informa- due to fraud or error, design and perform audit procedures tion, conclude that there is a material misstatement of this responsive to those risks, and obtain audit evidence that is other information, we are required to report that fact. We sufficient and appropriate to provide a basis for our opin- have nothing to report in this regard. ions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from Responsibilities of the Board of Directors and the error, as fraud may involve collusion, forgery, intentional Managing Director omissions, misrepresentations, or the override of internal The Board of Directors and the Managing Director are respon- control. sible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in ac- • Obtain an understanding of the company’s internal control cordance with the Annual Accounts Act and, concerning the relevant to our audit in order to design audit procedures consolidated accounts, in accordance with IFRS as adopted by that are appropriate in the circumstances, but not for the the EU. The Board of Directors and the Managing Director are purpose of expressing an opinion on the effectiveness of also responsible for such internal control as they determine is the company’s internal control. necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstate- • Evaluate the appropriateness of accounting policies used ment, whether due to fraud or error. and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Man- In preparing the annual accounts and consolidated accounts, aging Director. The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s • Conclude on the appropriateness of the Board of Directors’ ability to continue as a going concern. They disclose, as appli- and the Managing Director’s use of the going concern basis cable, matters related to going concern and using the going of accounting in preparing the annual accounts and consol- concern basis of accounting. The going concern basis of ac- idated accounts. We also draw a conclusion, based on the counting is however not applied if the Board of Directors and audit evidence obtained, as to whether any material uncer- the Managing Director intends to liquidate the company, to tainty exists related to events or conditions that may cast cease operations, or has no realistic alternative but to do so. significant doubt on the company’s and the group’s ability to

105 Nederman’s 2017 Annual Report and Sustainability Report

continue as a going concern. If we conclude that a material We must inform the Board of Directors of, among other mat- uncertainty exists, we are required to draw attention in our ters, the planned scope and timing of the audit. We must also auditor’s report to the related disclosures in the annual ac- inform of significant audit findings during our audit, including counts and consolidated accounts or, if such disclosures are any significant deficiencies in internal control that we iden- inadequate, to modify our opinion about the annual accounts tified. and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s re- We must also provide the Board of Directors with a statement port. However, future events or conditions may cause a com- that we have complied with relevant ethical requirements pany and a group to cease to continue as a going concern. regarding independence, and to communicate with them all relationships and other matters that may reasonably be • Evaluate the overall presentation, structure and content of thought to bear on our independence, and where applicable, the annual accounts and consolidated accounts, including related safeguards. the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions From the matters communicated with the Board of Directors, and events in a manner that achieves fair presentation. we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, • Obtain sufficient and appropriate audit evidence regarding including the most important assessed risks for material the financial information of the entities or business activi- misstatement, and are therefore the key audit matters. We ties within the group to express an opinion on the consol- describe these matters in the auditor’s report unless law or idated accounts. We are responsible for the direction, su- regulation precludes disclosure about the matter. pervision and performance of the group audit. We remain solely responsible for our opinions.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Opinions Responsibilities of the Board of Directors and the In addition to our audit of the annual accounts and consolidat- Managing Director ed accounts, we have also audited the administration of the The Board of Directors is responsible for the proposal for ap- Board of Directors and the Managing Director of Nederman propriations of the company’s profit or loss. At the proposal of Holding AB (publ) for the financial year 2017 and the proposed a dividend, this includes an assessment of whether the div- appropriations of the company’s profit or loss. idend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks We recommend to the general meeting of shareholders that place on the size of the parent company’s and the group’s the profit be appropriated (loss be dealt with) in accordance equity, consolidation requirements, liquidity and position in with the proposal in the statutory administration report and general. that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. Basis for opinions This includes among other things continuous assessment of We conducted the audit in accordance with generally accept- the company’s and the group’s financial situation and ensured auditing standards in Sweden. Our responsibilities under ing that the company’s organization is designed so that the those standards are further described in the Auditor’s Re- accounting, management of assets and the company’s finan- sponsibilities section. We are independent of the parent com- cial affairs otherwise are controlled in a reassuring manner. pany and the group in accordance with professional ethics for The Managing Director shall manage the ongoing administra- accountants in Sweden and have otherwise fulfilled our eth- tion according to the Board of Directors’ guidelines and in- ical responsibilities in accordance with these requirements. structions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance We believe that the audit evidence we have obtained is suffi- with law and handle the management of assets in a reassur- cient and appropriate to provide a basis for our opinions. ing manner.

106 Auditor’s report

Auditor’s responsibility Our examination of the corporate governance statement is Our objective concerning the audit of the administration, and conducted in accordance with FAR´s auditing standard RevU thereby our opinion about discharge from liability, is to obtain 16 The auditor´s examination of the corporate governance audit evidence to assess with a reasonable degree of assur- statement. This means that our examination of the corporate ance whether any member of the Board of Directors or the governance statement is different and substantially less in Managing Director in any material respect: scope than an audit conducted in accordance with Interna- tional Standards on Auditing and generally accepted auditing • has undertaken any action or been guilty of any omission standards in Sweden. We believe that the examination has which can give rise to liability to the company, or provided us with sufficient basis for our opinions.

• in any other way has acted in contravention of the Companies A corporate governance statement has been prepared. Disclo- Act, the Annual Accounts Act or the Articles of Association. sures in accordance with chapter 6 section 6 the second paragraph points 2-6 of the Annual Accounts Act and chapter 7 Our objective concerning the audit of the proposed appropri- section 31 the second paragraph the same law are consistent ations of the company’s profit or loss, and thereby our opinion with the other parts of the annual accounts and consolidated about this, is to assess with reasonable degree of assurance accounts and are in accordance with the Annual Accounts Act. whether the proposal is in accordance with the Companies Act. The auditor´s opinion regarding the statutory Reasonable assurance is a high level of assurance, but is not a sustainability report guarantee that an audit conducted in accordance with gener- The Board of Directors is responsible for the statutory sus- ally accepted auditing standards in Sweden will always detect tainability report on pages 36-41, and that it is prepared in actions or omissions that can give rise to liability to the com- accordance with the Annual Accounts Act. pany, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act. Our examination has been conducted in accordance with FAR’s auditing standard RevR 12 The auditor´s opinion regarding the As part of an audit in accordance with generally accepted au- statutory sustainability report. This means that our examina- diting standards in Sweden, we exercise professional judg- tion of the statutory sustainability report is different and sub- ment and maintain professional skepticism throughout the stantially less in scope than an audit conducted in accordance audit. The examination of the administration and the pro- with International Standards on Auditing and generally accept- posed appropriations of the company’s profit or loss is based ed auditing standards in Sweden. We believe that the examina- primarily on the audit of the accounts. Additional audit proce- tion has provided us with sufficient basis for our opinion. dures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus A statutory sustainability report has been prepared. the examination on such actions, areas and relationships that are material for the operations and where deviations and vi- Ernst & Young AB, Box 7850 103 99 Stockholm, was appoint- olations would have particular importance for the company’s ed auditor of Nederman Holding AB by the general meeting of situation. We examine and test decisions undertaken, support the shareholders on the 19 April 2017 and has been the com- for decisions, actions taken and other circumstances that are pany’s auditor since the 22 April 2015. relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed Helsingborg 16 March, 2018 appropriations of the company’s profit or loss we examined Ernst & Young AB the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. Staffan Landén Authorized Public Accountant The auditor’s examination of the corporate governance statement The Board of Directors is responsible for that the corporate governance statement on pages 50-53 has been prepared in accordance with the Annual Accounts Act.

107 Nederman’s 2017 Annual Report and Sustainability Report

Definitions

Adjusted EBITDA Interest cover ratio Operating profit before depreciation and amortisation, Profit before tax with return of financial costs in relation excluding acquisition and restructuring costs. to financial costs.

Adjusted EBITDA margin Net debt Adjusted EBITDA as percentage of net sales. Interest-bearing liabilities (including pensions) minus cash and cash equivalents. Adjusted operating margin Adjusted operating profit as percentage of net sales. Net debt/equity ratio Net debt divided by the closing balance at the end of Adjusted operating profit period. Operating profit excluding acquisition and restructuring costs. Operating capital Shareholders’ equity plus net debt. Annual average Average of year-beginning and year-end balance. Operating margin Operating profit as percentage of net sales. Capital turnover rate Net sales divided by the average operating capital. Operating profit Operating profit after depreciation and impairment. EBITDA Operating profit before depreciation and amortisation. Organic growth Growth rate that does not come from acquisitions and EBITDA margin currency effects, compared with the corresponding peri- EBITDA as a percentage of net sales. od in the previous year.

Earnings per share (after dilution) Return on equity Year’s earnings attributable to the parent company’s Net profit for the year after tax divided by average equity. shareholders in relation to average number of shares outstanding plus the average number of convertibles and Return on operating capital options, as calculated in accordance with IAS 33. Adjusted operating profit as a percentage of average operating capital. Earnings per share (before dilution) Year’s earnings attributable to shareholders in relation to the average number of shares outstanding.

Equity/asset ratio Equity divided by total assets (balance sheet total).

Equity per share Equity divided by the average number of shares outstanding.

108 Definitions | Articles of Association

Articles of Association

1 § Company name. The name of the Company is Nederman in Dagens Industri instead, that notice of the meeting has Holding Aktiebolag. The Company is a public company (publ). been given.

2 § Registered office. The registered office of the board 11 § Right to participate in Annual General Meeting. of directors is in Helsingborg municipality. Shareholders who wish to participate in proceedings at the Annual General Meeting must be included in the 3 § Company’s operations. The object of the Company’s transcript of the entire share register pertaining to the operations is to directly or through subsidiaries produce situation no later than five (5) weekdays before the and market products to improve the industrial workplace annual general meeting, and they must register with environment and to own and manage enterprises as well the Company no later than 4 p.m. of the day specified in as real estate and personal property, and to engage in the notice of the annual general meeting. This day may compatible operations. not be a Sunday, other general holiday, Saturday, Mid- summer Eve, Christmas Eve, or New Year’s Eve, nor may 4 § Share capital. The Company’s share capital shall it fall earlier than the fifth weekday before the annual not be lower than seven hundred and fifty thousand general meeting. Shareholders or representatives may be (SEK 750,000) and shall not exceed three million (SEK accompanied by a maximum of two assistants at a annual 3,000,000). general meeting, but only if the shareholder has notified the Company of the number of assistants in accordance 5 § Number of shares. The number of shares shall be no with the preceding paragraph. lower than ten million (10,000,000) and shall not exceed forty million (40,000,000). 12 § Location of Annual General Meeting. The Annual General Meeting may be held in Helsingborg or Stockholm. 6 § VPC-registered company. The Company’s shares shall be registered in a CSD register in accordance with the 13 § Annual General Meeting. The Annual General Meet- Swedish Financial Instruments Accounts Act (1998:1479). ing shall address the following matters: 1. Election of the chairperson of the meeting; 7 § Financial year. The Company’s financial year shall be 2. Preparation and approval of the voting list; the calendar year. 3. Approval of the agenda; 4. Election of one or two persons to verify the minutes; 8 § Board of directors. The board of directors shall 5. Determination of whether the meeting has been duly consist of at least three (3) and not more than eight (8) convened members with a maximum of three (3) deputies. Board 6. Presentation of the annual report and the auditors’ members will be elected annually at the Annual General report and report on the consolidated accounts; Meeting for the period extending until the close of the 7. Resolution to adopt the income statement and next Annual General Meeting. balance sheet as well as the consolidated income statement and consolidated balance sheet; 9 § Auditor. The firm shall have at least one (1) and no 8. Resolutions on appropriation of the Company’s profit more than two (2) auditors, without or with no more than or loss according to the adopted balance sheet; one (1) deputy auditor. An approved or authorized public 9. Resolution to discharge members of the board of di- accountant or a registered auditing firm shall be appoint- rectors and the Chief Executive Officer from liability; ed auditor and, where appropriate, deputy auditor. 10. Determination of the number of board members and deputies, as well as, where appropriate, auditors and 10 § Notice of Annual General Meeting. Notice of the deputy auditors; Annual General Meeting and Extraordinary General 11. Establishment of remuneration to the board of direc- Meetings where an issue concerning amendment of tors and, where applicable, the auditors; the Articles of Association shall be considered, must be 12. Election of members of the board and any deputy issued no earlier than six weeks and no later than four board members as well as, where appropriate, audi- weeks before the date of the meeting. Notice of other tors and any deputy auditors, Extraordinary General Meetings shall be issued not earlier Other items brought before the general meeting or than six weeks and not later than two weeks prior to the shareholders according to the Swedish Companies meeting. Notice of Annual General Meeting shall be given Act or the Articles of Association. in the Swedish Official Gazette (Post- och Inrikes Tidnin- gar) as well as on the company’s website. It shall be adver- These articles of association were adopted by the Annual tised in Svenska Dagbladet or, if publication is cancelled, General Meeting on 26 April 2011. 109 Nederman’s 2017 Annual Report and Sustainability Report Notification to attend the Annual General Meeting

Notification to attend the Annual General Meeting

The Annual General Meeting of Nederman Holding AB (publ) will take place on Thursday, 19 April 2018 at the Radisson Blu Metropol Hotel, Carl Krooks gata 16, 252 25 Helsingborg.

Schedule: 3 p.m. Registration starts 3:30 p.m. Meeting room opens 4 p.m. Meeting starts Coffee and refreshments will be served before the meeting.

Right to participate at the meeting Shareholders wishing to participate at the meeting must be recorded in the shareholders’ register kept by Euroclear Sweden by Friday 13 April 2018 and must notify the company of their intention to attend the meeting no later than 4 p.m. on Friday 13 April 2018. Shareholders whose shares are registered in the name of a trustee must have their shares temporarily registered in their own name in the Euroclear Sweden shareholders’ register in order to take part in the meeting. This registration, known as voting right registration, must take place by 13 April 2018, meaning that the shareholder should give notice of his/her intention of taking part at the meeting in due time before that date.

Notification Notification can be carried out in one of the following ways: – by e-mail [email protected] – by telephone: +46 (0)42 18 87 00 – by letter to: Nederman Holding AB (publ), ”Årsstämma” Box 602, 251 06 Helsingborg.

Notification should include details of name, civic registration number/corporate identity number, address, telephone, registered shareholding and advisers, if any. The information is solely used for the requisite registration and drawing up of the voting list. Where representation is made by proxy, the original proxy form must be sent to the company along with the notification to attend the meeting. In- dividuals representing a legal entity must have a copy of the registration form or equivalent documentation indicating the authorised signatory. The company will provide proxy forms for shareholders who so wish: The form is also available for downloading on Nederman’s website: www.nedermangroup.com.

Dividends The board and CEO propose a dividend for the 2017 financial year of SEK 6.00 per share.

Reports Q1 report: 19 April 2018 Q2 report: 12 July 2018 Q3 report: 18 October 2018

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Nederman Holding AB (publ.) Box 602, SE-252 28, Helsingborg, Sweden Visiting address: Sydhamnsgatan 2 Tel: +46 42 18 87 00 www.nedermangroup.com